A home inspection doesn’t come back as pass or fail. The inspector writes up the property’s condition, and you decide what to do with that information. So when people ask what happens if a house doesn’t pass inspection, the real question is what your options are once the report reveals problems you weren’t expecting. You generally have four: cancel the contract and get your earnest money back, ask the seller to make repairs, negotiate a credit or price reduction, or accept the home as it stands. Which one makes sense depends on the severity of the problems, your financing, and how firmly you want to hold the line.
The one thing you cannot do is sit on the report. Everything that follows runs on a deadline.
The Deadline That Controls Everything
Your ability to act on the inspection comes from the inspection contingency in your purchase agreement. That clause makes the sale conditional on your satisfaction with the inspection, and it runs for a specific window, usually seven to ten days after the seller accepts your offer. Inside that window you need to get the inspection done, read the report, and formally respond in writing if you want repairs, a credit, a price reduction, or out of the deal entirely.
Miss the deadline and most contracts treat your silence as acceptance. Your leverage disappears. Walking away after the window closes typically means forfeiting your earnest money deposit, which runs about 1% to 3% of the purchase price. On a $400,000 house, that is a very expensive missed email.
If something legitimately slows you down, a specialty inspection that ran late or a finding that needs a structural engineer’s opinion, your agent can submit a written addendum asking for more time. The seller has to agree, so point to a concrete reason rather than general hesitation.
Your Four Options After a Bad Report
Walk Away From the Deal
If the report turns up something more expensive or complicated than you want to take on, you can cancel the contract and get your earnest money back. Give the seller written notice before the contingency expires. This is the cleanest exit, and the contingency exists precisely for the moment the inspector finds a crumbling foundation, extensive water damage, or major electrical hazards that the listing never hinted at.
Buyers often resist this option because they’ve already pictured themselves in the house. The inspection fee, typically $300 to $425 for an average-sized home, is a small price next to inheriting a $30,000 foundation repair.
Request Repairs
You can ask the seller to fix specific items before closing. Your agent submits a formal repair request drawn directly from the inspection report, and the seller can agree to everything, some of it, or nothing.
This path works best for well-defined problems with clear fixes: replacing a failed water heater, repairing a leaking section of roof, bringing an electrical panel up to code. It gets messy when the request is vague. Asking a seller to “fix the basement moisture issue” invites the cheapest possible patch. The more specific your request, the better the outcome.
Ask for a Credit or Price Reduction
Many buyers would rather handle the work themselves after closing than trust the seller to oversee contractors on the way out the door. You can do that two ways: a seller credit toward your closing costs, or a straight reduction in the purchase price.
A price reduction lowers the loan amount, which trims your down payment slightly and your monthly mortgage payment over the life of the loan. A credit reduces what you owe at closing, putting more cash in your hands on moving day, which matters if repairs start the week you take possession.
Credits have a ceiling, though, because your lender caps how much the seller can contribute toward closing costs. On a conventional loan with less than 10% down, the seller can contribute up to 3% of the sale price. With 10% to 25% down, that cap rises to 6%, and with more than 25% down it reaches 9%.1Fannie Mae. Interested Party Contributions (IPCs) FHA loans allow seller contributions up to 6% of the sale price. VA loans cap seller concessions at 4% of the home’s appraised value, though credits applied directly to closing costs don’t count toward that limit.2U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
If the number you need is bigger than the credit limit allows, a price reduction is your only option. Credits also can’t close a gap between the contract price and a low appraisal. Only a price reduction does that.
Accept the Property As It Is
Sometimes the findings are manageable, the home was already priced to reflect its condition, or the market is competitive enough that pushing back risks losing the deal. In that case you proceed to closing. Just do the math honestly first. Get contractor estimates for the work you’ll inherit, and make sure you can carry both the mortgage and the repairs.
How the Negotiation Is Actually Documented
Once you ask for repairs or a credit, a formal back-and-forth begins. This isn’t a phone call between agents. It’s a structured exchange of written documents that amend the original purchase agreement.
Your agent submits a repair addendum or credit request that spells out exactly what you want. The seller reviews it and can accept, reject, or counter, perhaps agreeing to fix the roof but not the cosmetic items, or offering a smaller credit than you asked for. All of this has to wrap up before the inspection contingency expires, which puts real time pressure on both sides.
Whatever you agree to must be written into an amendment to the purchase contract. Not a handshake, not a text thread. The amendment names the specific repairs, credit amounts, or price adjustments, and once both parties sign, it binds them. If the seller agrees to replace the HVAC system before closing and then doesn’t, you have a contractual claim.
When Your Lender Forces the Issue
Even if you’re personally willing to accept a home’s condition, your lender might not be. Government-backed loans, FHA, VA, and USDA, impose minimum property standards that sit on top of whatever you and the seller work out. If the appraiser (a different person from your home inspector) flags problems, those items usually have to be repaired before the loan can close.
FHA Loans
FHA loans require the property to meet standards for safety, security, and structural soundness. In practice, the appraiser will flag a roof with fewer than two years of remaining life, foundation cracks showing active settlement, missing stair handrails, exposed or defective electrical wiring, and nonfunctional heating or plumbing. For homes built before 1978, any chipping or peeling paint must be stabilized or removed before closing because of lead-based paint rules.
These aren’t negotiable the way inspection items are. If the FHA appraiser calls out a deficiency, somebody has to fix it before the loan closes. Usually that’s the seller, though in some cases the buyer arranges the work through an escrow holdback.
VA Loans
VA loans carry similar minimum property requirements. The home must be safe, sanitary, and structurally sound. Common flags include a roof that isn’t weather-tight, foundation problems, inadequate heating, hazardous wiring, no potable water or functional sewage, and active termite or pest infestations. The property also needs year-round road access and drainage that moves water away from the foundation. VA appraisers tend to be strict about utilities being on during the visit so they can test systems directly. If utilities are off, expect delays.
Conventional Loans
Conventional loans backed by Fannie Mae or Freddie Mac are more flexible. They don’t publish a formal list of minimum property requirements the way FHA and VA do. The appraiser still evaluates condition and market value, but the bar for mandatory repairs is lower. Serious safety hazards or structural problems can still trigger conditions, but you’re unlikely to be forced into cosmetic or minor fixes.
Verifying the Repairs Were Actually Done
When the seller agrees to make repairs, verify the work before you sign at closing. The repair amendment should require licensed contractors, but that alone isn’t proof the job was done well.
A re-inspection by your original home inspector is the most reliable check. The inspector returns to confirm the agreed items were actually fixed and fixed properly. Re-inspections are usually quicker and cheaper than the initial visit, running roughly $100 to $200.
Beyond that, ask the seller for documentation: detailed invoices showing labor and materials, before-and-after photos, contractor receipts proving payment, and for any work that required permits, the building permit along with the final inspection approval from the local building department. Permitted work that never received a final inspection is a warning sign. No one from the municipality confirmed it meets code.
What the Seller Now Has to Tell the Next Buyer
Sellers sometimes refuse to negotiate, calculating that a less demanding buyer will come along. That’s their right, but the inspection creates a legal consequence they can’t undo: they now have documented knowledge of the defects.
Nearly every state requires sellers to disclose known material defects to prospective buyers. Once an inspection report identifies a failing foundation, active water intrusion, or faulty wiring, the seller can’t claim ignorance with the next buyer. Those issues have to go on any future listing’s disclosures.
The penalties for hiding known defects can be severe. Buyers who discover concealed problems after closing can sue for fraud, negligent misrepresentation, or failure to disclose. Courts have awarded damages well beyond the cost of the repair itself and in some cases tacked on the buyer’s attorney fees. For properties built before 1978, federal lead paint disclosure violations carry penalties of up to three times the buyer’s actual damages. In extreme situations, a court can unwind the whole transaction, returning the property to the seller and refunding the buyer.
If the Home Is Listed As-Is
An “as-is” listing signals that the seller won’t make repairs or offer credits based on inspection findings. It does not mean you give up the right to inspect. You can and should still get an inspection on an as-is property, and if your contract includes an inspection contingency, it still applies.
The difference is practical rather than legal. The seller has already told you they won’t fix anything, so your realistic options narrow to accepting the condition or walking away. You can still try to negotiate a price reduction, but expect resistance. The inspection’s value here is informational. It tells you what you’re actually buying so you can budget for repairs and avoid a catastrophic surprise.