Yes, you can buy a house as-is with a conventional loan, but the sale only closes if the property clears Fannie Mae or Freddie Mac’s minimum condition standards at the appraisal. Fannie Mae rates homes on a six-tier scale, and anything from C1 through C5 is eligible in as-is condition. A C6 rating, which signals damage or deferred maintenance severe enough to threaten structural integrity, disqualifies the property until repairs are made. The “as-is” language in your purchase contract controls what the seller owes you; it does not override what your lender requires before funding the loan.
What the As-Is Clause Actually Binds
An as-is clause is a message from the seller: the price reflects the home’s current condition, and they will not fix anything before closing. It is not a waiver of your right to inspect. Most purchase agreements still carry an inspection contingency of roughly ten to fifteen days, during which you can hire professionals to look at the structure, roof, plumbing, electrical, and foundation. If what they find is more than you want to take on, you can cancel and recover your earnest money. The seller simply is not obligated to do the repairs.
The clause also does not bind your lender. Fannie Mae and Freddie Mac impose their own property condition standards regardless of what the contract says about repairs, and the appraiser applies those standards. That is where most as-is conventional deals actually get decided.
Property Defects That Will Block a Conventional Loan
Fannie Mae’s Selling Guide draws a clear line: any deficiency that affects the safety, soundness, or structural integrity of the property has to be repaired before the loan can close.1Fannie Mae. B4-1.3-06, Property Condition and Quality of Construction of the Improvements Freddie Mac follows a similar framework. Cosmetic wear, dated finishes, and general deferred maintenance are usually fine. The problems that stop the deal tend to be these:
- Roof damage with active leaks or deterioration that no longer provides adequate protection.
- Foundation problems involving significant cracking, shifting, or settlement. Hairline cracks are typically fine; structural movement is not.
- Environmental hazards such as asbestos, toxic substances, or radon. If the hazard is severe enough that no comparable sales exist to measure its effect on value, the mortgage is ineligible.2Fannie Mae. Environmental Hazards Appraisal Requirements
- No permanent, working heat source.
- No legal road access to the property.3Fannie Mae. General Property Eligibility
- Evidence of wood-destroying insects, persistent dampness, or abnormal settlement, which triggers either repairs or a professional inspection before the loan can move.1Fannie Mae. B4-1.3-06, Property Condition and Quality of Construction of the Improvements
One quirk worth knowing: Fannie Mae does not require utilities to be turned on for the appraisal.4Fannie Mae. Appraisal and Property-Related Frequently Asked Questions If the power is off and the appraiser cannot verify a system works, though, they may flag it as unknown, which creates its own delay.
How the Appraiser’s Marking Controls the Closing
The appraiser is the gatekeeper. They do a complete visual inspection of accessible interior and exterior areas, note physical deficiencies, assign a condition rating, and complete the Uniform Residential Appraisal Report.5Fannie Mae. Uniform Residential Appraisal Report Two checkboxes on that report drive what happens next.
If the appraiser marks the report “as-is,” the home meets condition requirements in its current state and the loan can move forward. If they mark it “subject to” completion of specific repairs or alterations, the appraised value is conditional on that work being finished. The loan is frozen until it is.5Fannie Mae. Uniform Residential Appraisal Report
If the appraiser sees something outside their expertise, such as suspected foundation movement or possible termite damage, they can make the appraisal subject to a satisfactory inspection by a structural engineer, pest inspector, or similar professional.1Fannie Mae. B4-1.3-06, Property Condition and Quality of Construction of the Improvements
When the Lender Requires Repairs and the Seller Won’t Do Them
A subject-to appraisal is where as-is deals most often stall. The seller has committed not to fix anything, and the lender will not fund until specific things are fixed. In practice, this gets resolved one of three ways. You pay for the repairs yourself. You negotiate a price reduction or seller credit that covers the cost, which does not technically violate the as-is clause because the seller is not doing the work. Or the deal collapses.
When repairs are made, the appraiser returns to verify the work and documents the results on an Appraisal Update and/or Completion Report, Form 1004D. Some lenders will accept a virtual re-inspection. Only after the 1004D clears will the file move to closing.6Fannie Mae. Requirements for Verifying Completion and Postponed Improvements Plan on roughly $150 to $200 for the re-inspection, and expect the buyer to absorb it.
Repair Escrow Holdbacks
For minor items that do not affect safety, soundness, or structural integrity, the lender has discretion to set up a completion escrow and close the loan before the work is done. Funds are held back from the proceeds, and you finish the repairs after closing.6Fannie Mae. Requirements for Verifying Completion and Postponed Improvements
For new construction, or when exterior work is delayed by weather, the rules tighten. The lender withholds 120% of the estimated repair cost, or the full contract price under a fixed-price agreement. The work must be finished within 180 days of the note date, and the total cost of postponed improvements cannot exceed 10% of the as-completed appraised value.6Fannie Mae. Requirements for Verifying Completion and Postponed Improvements
Appraisal Gap Risk Is Higher on As-Is Homes
As-is properties carry above-average risk of a low appraisal. The condition depresses value, and deferred maintenance makes it harder to find clean comparable sales. When the appraisal comes in below your offer, the lender will only finance up to the appraised value. You cover the gap in cash if you still want the home.
Say you offered $300,000 and the appraisal came in at $275,000. The loan is based on $275,000, and you would bring an extra $25,000 to closing on top of your planned down payment. Most contracts include an appraisal contingency letting you walk away and recover earnest money. You can also try to renegotiate down to the appraised value, though sellers who already priced in the condition often will not move further.
Why Conventional Usually Beats FHA and VA for As-Is Homes
Conventional loans have the most flexible property condition requirements of the three major loan types, which is why they tend to be the default choice for as-is buyers.
FHA appraisers apply a more detailed checklist. Beyond the same structural and safety concerns, they flag missing handrails on staircases, chipping or peeling paint on any home built before 1978 regardless of whether lead is confirmed, and nonfunctional appliances. Those items must be repaired before an FHA loan closes. Cosmetic peeling paint on a post-1978 home would not trigger anything on a conventional appraisal. That single difference makes conventional loans considerably easier to use on homes with cosmetic wear.
VA loans add their own layer, including mandatory wood-destroying insect inspections in most states, and the VA can require additional inspections or repairs based on local conditions.
If the home’s issues are cosmetic, dated, or minor deferred maintenance, a conventional loan will almost always be the smoothest path. If the issues are structural enough to fail any appraisal, the loan type matters less than whether you switch to a renovation loan.
Renovation Loans When the Property Can’t Pass As-Is
When the home cannot clear condition requirements in its current state, a renovation loan rolls the purchase price and repair costs into one mortgage. The loan amount is based on the home’s value after the work is done, not what it is worth today.
Fannie Mae HomeStyle Renovation
HomeStyle is the conventional renovation loan. Any repair permanently attached to the property is eligible, from a new roof to a full gut. For a one-unit primary residence, you can put down as little as 3% through Desktop Underwriter. Manual underwriting requires a minimum credit score of 680, or 700 if your loan-to-value ratio exceeds 75%.7Fannie Mae. Eligibility Matrix On a purchase, the loan can reach up to 75% of either the purchase price plus renovation costs or the as-completed appraised value, whichever is lower. DIY work on a single-unit property is capped at 10% of the completed value.8Fannie Mae. HomeStyle Renovation
Freddie Mac CHOICERenovation
Freddie Mac’s equivalent works similarly, financing purchase and renovation in a single closing. It covers one- to four-unit primary residences, one-unit second homes, one-unit investment properties, and manufactured housing, along with eligible units in condos, PUDs, and co-ops.9Freddie Mac Single-Family. CHOICERenovation Mortgages
FHA 203(k)
If your credit or down payment does not fit conventional parameters, the FHA 203(k) program serves a similar purpose with more lenient borrower requirements and stricter property oversight. The Limited 203(k) handles cosmetic and minor repairs without a HUD consultant. The Standard 203(k) covers major structural rehabilitation, requires a HUD-approved consultant, and has a $5,000 minimum repair cost with no dollar cap beyond FHA loan limits in your area.
Costs to Plan For
As-is homes push more of the discovery and repair spending onto the buyer. A professional home inspection runs roughly $300 to $500 for a typical single-family property, closer to $700 for larger or older homes. Add-ons like radon, mold, or sewer scope are extra. A termite or wood-destroying organism report, if the lender requires one, runs about $75 to $275.
If the appraisal comes back subject to repairs, you pay for the work and for the appraiser’s re-inspection at around $150 to $200. Specialized inspections from structural engineers or environmental consultants may be needed if the appraiser flags something outside their expertise. These costs are not unusual on any home purchase, but they stack up faster on as-is deals because there is more to investigate and more likely to need follow-up.
Build in room for an appraisal gap as well. Sellers who already discounted for condition tend to resist further price cuts, so cash reserves above your down payment give you the flexibility to close if the numbers do not line up perfectly.