No FHA rule requires either the buyer or the seller to pay for FHA-required repairs. HUD’s policies say the property must meet minimum standards before the loan can close, but who writes the check is left to the purchase contract. In most deals the seller pays because it keeps the sale together, but the buyer can pay, the parties can split the cost, or the buyer can finance the work into the mortgage itself.
No FHA Rule Assigns the Bill
HUD Handbook 4000.1 governs single-family FHA loans and sets the condition a home must be in before the mortgage can be insured. It does not say who has to pay to get it there.1U.S. Department of Housing and Urban Development (HUD). SFH Handbook 4000.1 Information Page The agency cares about the state of the property, not whose funds paid for the fix.
Every home financed with FHA mortgage insurance has to meet HUD’s Minimum Property Standards and Minimum Property Requirements, which are built around three concerns: safety, security, and soundness.2eCFR. 24 CFR Part 200 Subpart S – Minimum Property Standards Safety picks up hazards like faulty wiring or peeling lead-based paint in older homes. Security means the house protects its occupants from intrusion and the elements. Soundness means the structure itself is stable.
When the FHA appraiser sees a problem in any of those categories, it lands on the appraisal report as a required repair. The lender will not close until the item is fixed and the fix is verified. But the funding source is open. Sellers commonly agree to handle the work because a failed FHA appraisal ties up their property, but a seller in a strong market can refuse without violating any FHA rule, and the transaction then moves to negotiation or ends.
How Buyers and Sellers Split the Cost in Practice
Because the federal rules stop short of assigning cost, the purchase contract is where responsibility gets pinned down. A few arrangements are standard.
The cleanest is for the seller to hire a contractor and complete the repairs before closing. The seller controls the cost and the timeline, and the file stays simple. Alternatively, the seller can offer a credit at closing: an agreed amount is deducted from the seller’s proceeds and applied toward the buyer’s costs, and the buyer arranges the work after the sale or has it built into their closing figures. A third option is that the buyer pays a contractor directly. That sometimes happens in competitive markets where the seller has other offers on the table that would not require the same repairs.
Shared costs are common when the repair bill is large. A seller might absorb the first portion of a foundation fix while the buyer covers the remainder. Whatever the split, it needs to be captured in a written addendum to the purchase contract, with the scope of work, a completion deadline, and the party responsible for hiring the contractor spelled out. The lender receives that addendum so the file reflects how the property will reach compliance before closing.
If the two sides can’t reach an agreement, the deal usually terminates under the appraisal contingency and the buyer gets the earnest money deposit back, because the property did not meet the criteria for the loan.
The Amendatory Clause Is Not a Repair Document
FHA transactions include a document called the amendatory clause, and its purpose is often misread. The amendatory clause protects the buyer if the appraised value comes in below the purchase price by giving them the right to walk away with their earnest money. It has nothing to do with who pays for repairs. Repair obligations are handled through the purchase agreement or a separate addendum.
The Six Percent Cap on Seller Credits
When a seller offers a credit toward closing costs or repairs, that credit counts as an interested party contribution under FHA rules. All such contributions combined cannot exceed six percent of the sale price.3U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower The six percent covers origination fees, discount points, prepaid items, interest rate buydowns, and the upfront mortgage insurance premium in addition to any repair credit.
Go over that ceiling and the excess reduces the property’s value dollar-for-dollar for loan calculation purposes. On a $250,000 home, six percent is $15,000. If the seller offered $10,000 toward closing costs plus a $7,000 repair credit, the $2,000 overage would push the value the lender uses down to $248,000 before applying the loan-to-value ratio.3U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
Two limits to keep in mind. Seller concessions cannot cover the buyer’s 3.5 percent minimum down payment, which has to come from the buyer’s own funds or an eligible gift. And real estate commissions paid by the seller under local custom do not count against the six percent cap.
Appraisal and Re-Inspection Fees
The FHA appraisal itself is a buyer expense. The lender orders it; the buyer pays for it as part of closing costs. Appraisals generally run $400 to $700 depending on the property type and location, with standard single-family homes toward the lower end.
When required repairs are complete, the appraiser or another qualified inspector has to verify the work before the lender will close. That re-inspection typically costs $175 to $200 and is also the buyer’s expense unless the purchase contract shifts it. On a home with known condition issues, budgeting for at least one re-inspection is reasonable.
A private home inspection is a separate matter. It is optional, strongly recommended, and paid by the buyer outside of closing. The FHA appraisal is a minimum-standards check; a private inspection looks at the property in real depth and can surface issues the appraiser is not required to flag.
When Weather Delays Repairs: Escrow Holdbacks
Some exterior work cannot be finished before closing. Exterior painting during a freeze or landscaping over frozen ground are typical examples. In those cases the lender may allow an escrow holdback: funds are set aside at closing to guarantee the work is completed afterward.4U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook
The lender deposits the estimated repair cost plus a contingency reserve into an escrow account held by the settlement agent or title company. The contingency percentage varies by lender, but the holdback always exceeds the estimate to cover overruns.
Holdbacks are generally limited to non-structural exterior work that weather is preventing. Structural repairs, foundation problems, and roofing typically don’t qualify because they go directly to soundness and have to be resolved before the loan closes. The lender sets a firm completion deadline, an inspector verifies the finished work, and any surplus from the contingency is refunded to whichever party funded it. If the deadline passes and the repairs aren’t done, the lender can hire a contractor and pay from the escrow. If those funds run short, the borrower is on the hook for the balance.
Financing the Repairs with a 203(k) Loan
When a buyer wants a home that needs serious work and the seller won’t pay for it, the FHA 203(k) Rehabilitation Mortgage rolls the repair cost into the mortgage itself. The purchase price and the renovation budget are financed as a single loan based on the home’s projected value after the improvements, not its current condition.5U.S. Department of Housing and Urban Development (HUD). 203(k) Rehabilitation Mortgage Insurance Program
Two versions exist. The Limited 203(k) covers minor, non-structural repairs and improvements up to $75,000, such as new flooring, weatherization, appliance replacement, or painting. There is no minimum repair amount, and a HUD-approved 203(k) consultant is optional.5U.S. Department of Housing and Urban Development (HUD). 203(k) Rehabilitation Mortgage Insurance Program The Standard 203(k) is for major rehabilitation, including structural work, additions, and full renovations. There is no per-project dollar limit beyond the FHA loan limits for the area, and a 203(k) consultant is required.6U.S. Department of Housing and Urban Development. Revisions to the 203(k) Rehabilitation Mortgage Insurance Program
A 203(k) shifts the full repair cost onto the buyer’s long-term mortgage. Interest accrues on the rehabilitation portion for the life of the loan, and both the upfront and annual mortgage insurance premiums are calculated on the combined figure. Consultant fees, when required, can be financed into the loan rather than paid out of pocket, subject to HUD’s schedule of maximums.6U.S. Department of Housing and Urban Development. Revisions to the 203(k) Rehabilitation Mortgage Insurance Program For a buyer whose seller has flatly refused to touch the repair list, a 203(k) is often the difference between closing and walking.