Lender-required repairs are fixes a mortgage company insists on before it will fund your loan, triggered when the appraiser finds problems that threaten the home’s safety, structural soundness, or basic livability. The appraisal report doesn’t assign responsibility for the cost, so who pays comes down to negotiation between buyer and seller. In practice, sellers usually end up covering the work because the same issues will trip up the next financed buyer, but that outcome isn’t guaranteed, and in a strong seller’s market plenty of owners hold out for a cash buyer who’ll take the house as-is.
The reason lenders care at all is that the home is their collateral. If you default, they need a property worth enough to recover the debt, which means it has to be safe to occupy and durable enough to hold its value. Government-backed loans enforce the strictest version of that standard; conventional loans are more forgiving. The loan type you’re using shapes almost everything about how this plays out.
What Triggers a Required Repair
Appraisers flag problems that fall into three buckets: health and safety hazards, structural defects, and security or utility failures. Cosmetic ugliness, no matter how severe, isn’t on the list.
Health and Safety
Lead-based paint is the single most common trigger for homes built before 1978. Under the Lead-Based Paint Poisoning Prevention Act, peeling, chipping, or cracking paint in these older homes has to be stabilized before closing: loose material removed and a new protective coating applied.1eCFR. 24 CFR Part 35 – Lead-Based Paint Poisoning Prevention in Certain Residential Structures Full abatement isn’t required, but the prep has to follow specific methods like wet scraping rather than dry sanding.
Heating systems get close attention because a home without adequate heat risks frozen pipes and becomes uninhabitable in cold months. FHA guidelines require heating adequate for “healthful and comfortable living conditions,” and the appraiser evaluates whether the system can realistically keep the home warm enough to protect plumbing and occupants.2Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1 A property with no heat source, a broken furnace, or a system that only heats part of the home will get flagged.
Exposed electrical wiring, missing smoke detectors, and absent handrails on staircases with four or more risers round out the typical safety list. The handrail threshold surprises people: three steps won’t trigger anything, four will.
Structural Problems
Roofs draw serious scrutiny. HUD’s minimum property standards require a roof to have at least two years of remaining useful life, and active leaks or missing shingles must be repaired.3Department of Housing and Urban Development (HUD). 4150.2 Property Analysis – Section: Roof When the appraiser can’t judge remaining life from a visual inspection, which is common with flat roofs, the lender may require a separate roof inspection by a qualified contractor.
Foundation cracks that suggest active shifting or water intrusion get sent to a licensed structural engineer. Hairline cracks in a basement wall rarely trigger anything, but horizontal cracking, stair-step patterns in masonry, or visible bowing typically will. A standard residential structural evaluation runs $350 to $800, and whatever the engineer prescribes can cost significantly more.
Active wood-destroying insect infestations, including termites, carpenter ants, and powder-post beetles, must be treated before closing. A residential termite inspection costs $75 to $200, with treatment running $500 to $2,000 depending on severity and method.
Security and Utilities
Every exterior door needs a working lock, and every window needs intact glass. A broken pane or a door that won’t secure counts as both a safety hazard and a marketability problem. Lenders also require access to clean, potable water and a sewage system that meets local health standards. For homes on private wells, that usually means passing a water potability test for coliform bacteria and E. coli ($60 to $100 for the basic panel, $180 to $280 for a comprehensive one), and meeting minimum separation distances from the septic system: FHA requires at least 50 feet between the well and the septic tank, and 100 feet between the well and the drain field.4Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1
How Your Loan Type Changes the List
This is where most buyers get the wrong idea. Government-backed loans enforce significantly stricter property standards than conventional financing, and the gap is wide enough to change which homes you can realistically buy.
FHA loans follow HUD Handbook 4000.1, which sets detailed Minimum Property Requirements covering heating, electrical, roof life, lead paint, water, sewage, and the adequacy of kitchen and bathroom facilities.2Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1 FHA appraisals are also property-specific: the appraisal stays with the property for 180 days, so if your deal falls through, the next FHA buyer inherits the same repair list.5Department of Housing and Urban Development (HUD). FHA Implements Revised Appraisal Validity Period Guidance That dynamic is a big reason sellers eventually agree to make the fixes.
VA loans follow Chapter 12 of the VA Lender’s Handbook, with Minimum Property Requirements similar to FHA’s and equally demanding on health and safety items.
Conventional loans backed by Fannie Mae or Freddie Mac are more lenient. The property must be “safe, sound, and structurally secure,” but the appraiser has more discretion about what crosses the line.6Fannie Mae. General Property Eligibility Fannie Mae uses a condition rating from C1 (new or like-new) through C6 (substantial damage). Properties rated C1 through C5 can be financed as-is, but a C6 rating, meaning defects severe enough to affect safety or structural integrity, makes the property ineligible until repaired to at least C5.7Fannie Mae. Property Condition and Quality of Construction of the Improvements In practice, a conventional loan might close on a home with an aging roof or cosmetic issues that would stop an FHA deal cold.
What Appraisers Won’t Flag
Required repairs are limited to safety, security, and structural soundness. Cosmetic issues don’t make the list, however ugly they are. HUD guidance specifically names worn floor finishes, old carpeting, holes in window screens, and small cracks in a windowpane as deferred maintenance that doesn’t rise to the level of a required repair.8Department of Housing and Urban Development (HUD). Chapter 4 Property Valuation and Appraisals – Section: Appraisal Repair Requirements The appraiser still notes these items and factors them into the property’s condition rating and value, but they won’t hold up your closing.
Outdated kitchens, faded siding, minor drywall dings, and older but functional fixtures all sit on the cosmetic side. If you’re buying with FHA or VA financing and the seller is nervous about the appraisal, knowing where the line falls helps set realistic expectations.
Who Actually Pays
The appraisal doesn’t assign cost, and that’s where deals stall. Most purchase contracts include a financing or appraisal contingency that gives both sides a framework for working through repair demands, but the dollars themselves are negotiated.
Sellers typically end up covering lender-required repairs for a practical reason: the issues affect any financed buyer, not just you. A seller who refuses to fix a broken furnace flagged on an FHA appraisal will meet the same problem with the next FHA buyer, and the appraisal result stays attached to the property for 180 days. In a hot market, though, sellers sometimes refuse anyway, betting a cash buyer or a conventional borrower will accept the property as it stands.
If the seller won’t pay, you have a few options, none of them clean:
- Pay for the repairs yourself before closing. This gets awkward because you’d be spending money on a property you don’t yet own. The seller has to grant access and permission, and that requires a written agreement addressing liability if something goes wrong.
- Negotiate a price reduction and have the lender close with repairs pending. This rarely works for safety items on government-backed loans, since the appraisal condition has to be cleared before funding.
- Split the cost. Common when the repair bill is bigger than either side wants to swallow alone.
- Walk away using your financing contingency (covered below).
Whoever pays, the actual work almost always has to be done by licensed, insured professionals. Lenders won’t accept DIY fixes on electrical, plumbing, or structural items. Budget for collecting detailed invoices, paid receipts, contractor license numbers, and before-and-after photos. Your loan officer will need all of it to clear the repair conditions.
When Repairs Can’t Finish Before Closing
Sometimes the work can’t be done in time, often because of weather, contractor scheduling, or seasonal limits on things like exterior painting. An escrow holdback lets the deal move forward anyway. The lender sets aside funds at closing to cover the repair costs and releases them once the work is verified complete.
The holdback amount depends on the loan type. FHA and VA loans require funds equal to 150% of the estimated repair costs, with FHA setting a minimum holdback of $500. Conventional loans backed by Fannie Mae or Freddie Mac typically require 120% of the estimated cost, or 100% if a contractor provides a guaranteed fixed-price contract for new construction. The extra cushion covers overruns, and whatever isn’t spent gets refunded.
FHA’s standard 203(b) repair escrow caps total repairs at $10,000 before the contingency reserve. If your repair list is bigger than that, a standard holdback won’t cover it and you may need a renovation loan instead. Holdbacks also come with completion deadlines; the lender expects the work done within a set window, and the funds don’t sit indefinitely.
Once the work is done, the appraiser returns to verify it on the Appraisal Update and/or Completion Report (Fannie Mae Form 1004D, also called Freddie Mac Form 442).9Fannie Mae. Appraisal Update and/or Completion Report The borrower pays for the re-inspection: the VA sets its fee at $150, and FHA and conventional re-inspections typically run $150 to $250.10Department of Veterans Affairs. VA Appraisal Fee Schedules and Timeliness Requirements
When the Repair List Is Too Big for a Standard Loan
If repairs are extensive enough that no seller will fund them and no standard escrow holdback will cover them, renovation loans let you finance the purchase and the repairs together. Four programs do most of this work:
- FHA Limited 203(k): Up to $75,000 for non-structural improvements like kitchens, flooring, plumbing, and electrical. No minimum repair cost, and the work doesn’t have to be done before closing.
- FHA Standard 203(k): Major structural rehabilitation with no cap on renovation costs. Requires a HUD consultant to oversee the project.
- Fannie Mae HomeStyle Renovation: A conventional option that finances improvements up to 75% of the home’s post-renovation value, covering interior and exterior work including outdoor amenities like landscaping. Manufactured homes qualify for non-structural improvements only.11Fannie Mae. HomeStyle Renovation Mortgages – Loan and Borrower Eligibility
- USDA Purchase with Rehabilitation: Available in rural-eligible areas with 100% financing. Non-structural repairs up to $35,000 require no minimum cost; structural repairs over $35,000 require a qualified inspector and a detailed write-up. Manufactured homes, condos, and new construction are ineligible.12USDA Rural Development. Purchase with Rehabilitation and Repair Loans
Renovation loans add paperwork, lengthen the timeline, and often raise closing costs, but they solve a problem a standard purchase loan can’t. If your repair list starts pushing past $10,000, ask your loan officer whether a renovation program fits the situation better than trying to force everything into a holdback.
When the Deal Falls Apart
Sometimes the repair list is too expensive, the seller won’t move, and the math stops working. Knowing your exit matters as much as knowing the repair process.
If your purchase contract includes a financing contingency, and most standard contracts do, you can typically recover your earnest money deposit when the lender denies the loan because of property condition. The contingency protects you when the property doesn’t meet the lender’s standards and the seller refuses to make it right. Without that contingency, the seller may be entitled to keep your earnest deposit as compensation for taking the home off the market.
Walking away isn’t always the wrong call. A $15,000 repair list on a property where the seller will only contribute $5,000 is a $10,000 problem you inherit, before accounting for whatever contractors find once they open up walls or dig into foundations. The appraisal catches visible problems. It doesn’t guarantee there aren’t more hiding behind them.