Equity – New Work for Equity Requirements

Equity - New Work for Equity Requirements

We recently got caught in another regulation change on our way to closing. Are you aware that there are new work for equity requirements? Do you even know what that means?

1.  For existing construction: only repairs or improvements listed on the appraisal are eligible for work for equity. Any work or materials not included on the appraisal are not eligible.

What appraisal? This means, the lender wants me to get an appraiser to look at the work the buyer will be doing and set a price for it.

Then, the appraiser must look at it after the work is done to confirm the work and the value.

2.  For any new construction, the sales contract has to list the work for equity work to be performed by the buyer so that a value can be assigned and confirmed.

3.  On the borrower’s side, guidelines state that “the borrower must demonstrate his/her ability to complete the work in a satisfactory manner.”  Um, is that left up to someone’s interpretation?

4.  “The lender must document the contributory value of the labor either through the appraiser’s estimate or a cost-estimating service.”  What’s a cost-estimating service?

5.  Here is what they list as the things that may not be included in work for equity: delayed work, clean up, debris removal and other “general maintenance.”

OK, a few problems with this sentence. Clean up may not be counted? Have they ever seen the way we buy some of these houses? We recently spent over $3000 at the dump for a house we bought just getting rid of the personal possessions left behind. Not great possessions, mind you, there were 52 tires in the house. But, nevertheless, “clean up”, in my bookkeeping, counts as an expense.

And other “general maintenance.” Someones interpretation?

We spent over $6000 on interior paint. Warning, the lender may not allow it. This fell into a gray area – is it a repair, or is it cosmetic? Beware, paint may not count toward work for equity.

6.  Cash back to borrower is not permitted in work for equity.

7.  Compensation for work performed on other properties may not be allowed toward the property being purchased.

8.  If the borrower furnishes funds and materials, the borrower must provide evidence of the source of funds and the market value of the materials. They must turn in all receipts to the lender.

Sellers are doing more and more to help buyers qualify for purchase, including giving them credits for work that must be done to the house after purchase. Know what their lender requires before agreeing to any work for equity concessions.

Have you had any experience with this?

This post has 10 Comments | Would you like to leave a comment?


  1. Jonthas – Thanks for the heads-up about credit card balances triggering a rate increase.

    Many say that you should never use more than 50 percent of your credit limit to protect your interest rate and credit score.

    Thanks for leaving a comment.

  2. The question has to deepnd on the contract for your home equity loan. You can get a convenience check from the credit card people to pay the equity loan if you have the right to pay it off. Some loans are for the whole period else you pay a penalty. When interest rates have gone down, many lenders will not be happy to let you pay off if your contract does not provide for that.But beware. a sudden increase in the amount you have on your credit card can trigger an interest rate increase. Confirm that this will not be done before you do it.

  3. Please, please, please keep us all posted here as to what happens with your transaction!

    Thank you, Jeff, and good luck!

  4. Don’t ask me how I know about the 90 day seasoning issue! I am meeting with
    a lender this Friday who works with various Real Estate Investors in our
    area. He actually works with the Rent to Own clients to help them
    repair/build credit and then get them approved for a loan, so we will see
    how productive that is at getting our people approved as well as the hoops
    that we have to jump through!

    Jeff Paulus
    Integrity Properties Manager

  5. There is no absolute answer to that question, Jeff, as each lender gets to make their own regulations. As always when you deal with a lender, you do what they tell you to do. We typically keep working to give them everything they ask for until they say the deal is dead.. or it closes.

    Definitely know that you must keep records and receipts for your expenses as they may ask for those. You want to show what you spent so they can’t count that as profit.

    And, when selling, best not enter into a contract until you’ve owned the house for at least 90 days.

  6. So, Karen, what do you do to side step/comply-with these regulations? Great post, by the way, as well as the Short Sale post!

  7. My sentiments, exactly!

  8. Great post!

    I have only one thing to say after reading this: AGH!!!

  9. I still don’t see where any of the legislation is truly helping buyers…

  10. Wonder what THIS will do to the housing recovery?

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