What Repairs Can Lenders Require Before Closing?
When a home is purchased using a mortgage, the lender is not only evaluating the buyer — they are also evaluating the property being used as collateral for the loan.
Because of that, lenders may require certain repairs to be completed before closing as a condition of loan approval.
These requirements are not intended to improve the home or address cosmetic issues.
They are focused on safety, habitability, and risk.
This page explains:
- Why lenders can require repairs
- Where those requirements come from
- How standards differ by loan type
- What options buyers and sellers typically have in Pennsylvania
Why Lenders Can Require Repairs
Mortgage lenders rely on the appraisal to confirm:
- The property value supports the loan amount, and
- The property meets the minimum property standards for the loan program being used
If the appraiser identifies conditions that affect:
- Safety
- Basic livability
- Structural integrity
- Long-term durability of the property
Lender repair requirements are tied closely to the loan approval process, which begins well before closing. Understanding what pre-approval actually means — including how lenders evaluate both the buyer and the property — helps explain why certain conditions must be addressed before a loan can move forward.
Where Repair Requirements Come From
Government-Backed Loans (FHA, VA, USDA)
For government-backed loans, repair requirements are not created by the lender or the appraiser.
They originate from federal agencies — most commonly U.S. Department of Housing and Urban Development (HUD) — and are enforced through the appraisal and underwriting process.
Common source documents include:
- HUD Single Family Housing Policy Handbook 4000.1
(FHA minimum property standards and appraisal requirements) - VA Minimum Property Requirements (MPRs)
Issued by the Department of Veterans Affairs - USDA Rural Development Property Requirements
Appraisers are required to identify conditions that do not meet these published standards, and lenders must follow them to maintain program compliance.
These requirements are focused on:
- Health and safety
- Functional utilities and systems
- Safe access and egress
- Structural soundness
They are not discretionary.
Conventional Loans
Conventional loans are not governed by HUD minimum property standards.
Repair requirements for conventional loans typically come from:
- Lender risk guidelines
- Appraiser observations related to safety or structural integrity
As a result, conventional financing is often more flexible when it comes to minor issues, though serious safety or structural concerns can still trigger required repairs.
Common Types of Lender-Required Repairs
While every property is different, lender conditions most often fall into predictable categories.
Health and Safety Issues
These are the most common and least negotiable.
Examples may include:
- Exposed or unsafe electrical wiring
- Missing or damaged stair railings
- Broken or missing handrails
- Significant tripping hazards
- Non-functional heating systems
- Missing smoke or carbon monoxide detectors (when required)
Structural or Water-Related Concerns
Lenders want to ensure the home will remain stable and weather-resistant.
Examples include:
- Active roof leaks
- Ongoing water intrusion
- Rotted structural components
- Significant foundation movement
Normal wear, cosmetic cracking, or aging materials are usually not an issue unless active damage is present.
Non-Functional Systems
Most loan programs require that basic systems are operational at the time of appraisal.
This commonly includes:
- Heating
- Electrical service
- Plumbing
- Water and sewer or septic systems
If utilities are not on at the time of appraisal, the appraiser may be unable to verify system functionality, which can result in lender-required repairs or re-inspection conditions before the loan can be approved.
How Repair Requirements Differ by Loan Type
Not all loan programs apply the same property standards. The type of financing being used can significantly affect which issues must be addressed before closing.
Government-Backed Loans (FHA, VA, USDA)
For government-backed loans, repair requirements are based on published program standards issued by federal agencies and enforced through the appraisal and underwriting process. These standards focus on safety, basic habitability, and the long-term durability of the property.
Because these requirements are program-driven, appraisers and lenders do not have discretion to waive them. If a condition does not meet the minimum property standards for the loan type, it typically must be addressed before the loan can be approved.
Conventional Loans
Conventional loans are not governed by federal minimum property standards. Repair requirements for these loans are usually tied to lender risk guidelines and appraiser observations related to safety, structural integrity, or system functionality.
As a result, conventional financing is often more flexible with minor or cosmetic issues. However, significant safety hazards, major structural concerns, or non-functional systems may still need to be corrected prior to closing.
Because repair standards vary widely, the same property may qualify under one loan program but not another. Understanding how FHA, VA, USDA, and conventional loan requirements differ can help buyers choose financing that better matches the condition of the home.
Inspection Repairs vs. Lender Repairs (Important Distinction)
These two are often confused but are very different.
Inspection-Related Requests
- Based on the buyer’s inspection report
- Negotiated between buyer and seller
- Optional, depending on the Agreement of Sale
Lender-Required Repairs
- Come from appraisal or underwriting conditions
- Required for loan approval
- Cannot be waived by buyer or seller preference
Even if a buyer is willing to accept a condition, the lender may not be able to proceed without it being addressed. When a property is being sold “as-is,” lender-required repairs may still apply, because “as-is” affects what a seller agrees to fix but does not override lender underwriting standards.
This confusion often comes from misunderstanding the difference between a
home inspection and an appraisal. While inspections are informational and buyer-focused, appraisals are lender-focused and tied directly to loan approval. Knowing how these two steps differ can help explain why some repair issues are negotiable while others are not.
Who Pays for Lender-Required Repairs?
There is no universal rule.
Depending on the situation, outcomes may include:
- Seller completing repairs prior to closing
- Buyer and seller renegotiating terms
- Buyer changing loan programs
- Buyer terminating the agreement if permitted by contract terms
Some loan programs allow limited repair escrows, but these are not guaranteed and depend on lender policy, loan type, and the nature of the repair.
What Happens If Repairs Can’t Be Completed?
If lender-required repairs cannot be completed before closing, common outcomes may include:
- Extending the settlement date
- Changing financing types
- Terminating the transaction using the appropriate Pennsylvania termination documentation, if the buyer’s contractual rights allow
In Pennsylvania, ending a real estate transaction involves specific documentation rather than simply “canceling” a deal. While the exact form used depends on the situation, transactions are formally terminated using Pennsylvania-specific termination paperwork when contractual conditions allow.
Why This Matters for Buyers and Sellers
Understanding where repair requirements come from helps:
- Buyers choose financing that fits the property condition
- Sellers price and prepare realistically
- Both parties avoid late-stage surprises
In many transactions, the loan program matters just as much as the condition of the home.
Final Takeaway
Lender-required repairs are not about perfection or upgrades.
They are about safety, functionality, and compliance with loan program standards.
Knowing how these requirements work — and where they come from — can prevent delays, renegotiations, or failed transactions.
For reference only. Not all situations are covered. Loan requirements vary by lender and program. Buyers and sellers should consult their real estate agent and lender for guidance specific to their transaction.
