FHA Handbooks

6. Property Related Acceptable Sources of Funds

October 26, 2009

The table below describes additional requirements for applying sweat equity as a cash equivalent and as an acceptable source of borrower funds.

Sweat Equity Category	Requirement
Existing Construction	Only repairs or improvements listed on the appraisal are eligible for sweat equity. Any work completed or materials provided before the appraisal are not eligible.
Proposed Construction	The sales contract must indicate the tasks to be performed by the borrower during construction.
Borrower's Labor	The borrower must demonstrate his/her ability to complete the work in a satisfactory manner. The lender must document the contributory value of the labor either through the appraiser's estimate, or a cost-estimating service.
Delayed Work	The following cannot be included as sweat equity: delayed work (on-site escrow) clean up debris removal, and other general maintenance.
Cash Back	Cash back to the borrower in sweat equity transactions is not permitted.
Sweat Equity on Property Not Being Purchased	Sweat equity is not acceptable on property other than the property being purchased. Compensation for work performed on other properties must be in cash, and properly documented.
Source of Funds Evidence	Evidence of the following must be provided if the borrower furnishes funds and materials: source of the funds, and market value of the materials.