Learning About Household Budgets

Can You Get A Home Equity Loan Based On Sweat Equity?

Understanding that sweat equity and traditional equity are two different things, you might wonder if it is possible to get a home equity loan based on sweat equity. Sweat equity is the value of improvements made to your home and property, while traditional equity is that part of your home that you own free and clear of a mortgage. They are very different beasts, which is why many people raise the question in the first place. Here is the rather complicated short answer on the matter.

It Is Difficult to Place a Value on Sweat Equity

Sweat equity is not usually taken into consideration until you are ready to sell your home. Then a building inspector comes in to make sure the home is safe, followed by a real estate agent who can evaluate the home and property. All of the things you did to improve the home and property are taken into consideration for estimating your home's new worth. Unfortunately, the figures you receive for the valuation and evaluation are a sum total, and not the value of its old and new parts.

Unless You Built the House Yourself, Sweat Equity Is Not Often Assigned a Value

Certain charitable organizations require several hundred hours of sweat equity before you can build and reside in your own house. These organizations have the tools and the ability to measure, valuate, and calculate your sweat equity. The number these groups assign to that sweat equity only provides for the home's resale value and for government programs that give grants to these types of charities based on the sweat equity figures provided. Since you do not have access to these tools, nor is it likely that you built your own house from the ground up, there is no way to get money from your sweat equity.

Lenders Cannot Verify the Value of Sweat Equity

Imagine walking into a bank and asking for an equity loan because you have sweat equity in your home that you would like to borrow against. Once you say it out loud, it does sound funny, does it not? The lenders cannot verify how much time, effort, and DIY work you put into the home by yourself, nor can you prove that all of the DIY improvement projects were done solely by you. That said, you cannot show what your improvements are worth, there is no good way to valuate the improvements until your house is sold, and the lenders are hesitant of lending money for financial facts they cannot see or touch. Ergo, no, you cannot get an equity loan based on sweat equity alone.

For more information, contact a company like Frontier Community Credit Union.