Trend Homes, a Chandler, Ariz.-based builder, is two weeks into a program that reduces buyers' down payment on FHA mortgages by up to two percentage points when they help put the finishing touches on the homes they are buying.

This "work equity" program arose after Trend, like all builders across the country, was banned by the federal government, as of Oct. 1, from providing down-payment assistance to buyers as a purchasing incentive. The conventional wisdom within the housing industry has been that this ban would keep a portion of buyers out of the market.

Reed Porter, Trend Homes' president, notes, however, that down-payment assistance is a relatively recent phenomenon for builders; his company only started offering it in 1999 when it became more popular and even essential as house prices started rising.

Before that, though, Trend had taken advantage of a little-used "sweat equity" provision that FHA had allowed since the early 1970s. The original intent of that provision, recalls Porter, was to allow buyers who might also be plumbers or carpenters to help complete the houses they were buying in exchange for getting a break on how much money they had to put down.

Trend Homes took this program one step farther so that nonprofessionals could participate. Between 1975 and 1989, when Trend was building homes in Salt Lake City, buyers could get a 1.5 percentage point reduction on their down payments if they agreed to paint the interior of the house being built or do the landscaping work on the front and backyards.

When Trend moved to Arizona in the late 1980s, the local FHA office at first didn't approve the builder's program because of the landscaping component. (Porter says that FHA didn't want houses with landscaping that might have to be torn out because of local water restrictions.) So the builder limited the program to just painting and offered it to buyers for the next decade. Porter says it was "highly utilized" by first-time buyers in particular.

It discontinued the work equity plan when it became easier just to give buyers down-payment assistance, which up until its expiration was used for more than half of Trend's sales. (Trend's homes in the greater Phoenix market range from the $110,000s to the $170,000s, according to its Web site.) But the housing bill that Congress passed this summer removed that option from builders, which led Trend to dust off its old program and see how it flies with buyers.

FHA requires 3.5 percent down on its mortgages, and Trend's buyers can reduce their down payment by two percentage points if they agree to paint the interior and/or exterior of the home they want to buy. Porter says that the painting has to be done during the day so it can be monitored by a jobsite supervisor. (The program does not extend to completed spec homes.)

Porter tells BUILDER that this program can be tricky because "it's difficult to manage and there are certain liabilities." The biggest trick is getting investors and mortgage companies to allow the down-payment reduction. Porter declined to discuss how he has successfully gotten lenders on board. "I don't want to tell my competitors everything," he says. However, work for down-payment relief is not something a lot of builders have embraced. Porter says that when Trend offered the program in the 1990s, two or three smaller builders followed suit. "But the big builders did not."

John Caulfield is a senior editor at BUILDER magazine.

Learn more about markets featured in this article: Phoenix, AZ, Salt Lake City, UT.