No law or lender rule decides who pays for lender-required repairs. The purchase contract and the negotiation between buyer and seller settle it. Lenders can insist that certain problems get fixed before they fund the mortgage, but they have no authority to assign the bill to one side or the other. In practice, sellers cover these costs more often than buyers, especially in balanced or buyer-friendly markets, because losing a qualified borrower over a few thousand dollars in repairs rarely makes financial sense.
Why the Contract Decides, Not the Lender
When an appraiser flags a property for safety, soundness, or structural problems, the lender issues a conditional approval. The loan cannot close until the flagged items are repaired and verified. That is the limit of the lender’s involvement. The lender does not care whose money fixes the roof or rewires the panel, only that the work is done and documented before closing.
Everything else is between the parties. The purchase agreement, any inspection or financing contingencies written into it, and the repair addendum the parties sign after the appraisal all govern who hires contractors, who writes the checks, and what happens if the work doesn’t get done. Government-backed loans (FHA, VA, and USDA) tend to flag more items than conventional loans because they enforce stricter Minimum Property Requirements, but even then, the loan program itself is silent on which party pays.
The Three Ways Buyers and Sellers Split the Cost
Once the lender’s conditions are known, the parties formalize who pays through an amendment or addendum to the purchase contract. Three structures account for most deals.
The seller pays directly. This is the most common path in balanced markets. The seller hires contractors, pays the invoices, and completes the work before closing. It is the cleanest arrangement because the seller already owns the property and has straightforward legal standing to authorize work on it. For sellers, the alternative is often watching the deal collapse and starting over with a new buyer who will likely demand the same repairs anyway.
The buyer pays out of pocket. In competitive markets, some buyers volunteer to cover repair costs to keep their offer attractive against other bids. The risk is real: the buyer is spending money to improve a property they do not yet own. If the loan falls through for an unrelated reason, or the seller backs out, the buyer has little recourse to recover those costs.
A price reduction. The parties lower the sale price by roughly the cost of the repairs, and the buyer handles the work after closing. This shifts the financial burden back to the seller in effect, while giving the buyer control over who does the work and when. It only functions for repairs the lender will allow to be completed after closing through an escrow holdback. For anything the lender insists be fixed before funding, a price cut alone does not solve the problem.
Why a Closing Credit Usually Won’t Work
Buyers sometimes propose a seller credit at closing instead of actual repairs. For lender-required fixes, this rarely flies. Most lenders reject credits in place of mandated repairs because they want the work physically completed and verified before releasing funds. A credit shuffles money on paper without resolving the safety or structural issue the appraiser flagged. If a buyer and seller agree to a credit, the lender can still refuse to close the loan.
When Neither Side Will Pay
If buyer and seller cannot agree on who covers the cost, the loan sits in limbo and the deal eventually dies. What happens to the buyer’s earnest money depends on the contingencies in the contract.
A financing contingency protects the buyer when the property fails to meet the lender’s condition requirements. If the seller refuses to make the repairs the lender demands, the buyer can usually terminate the contract and recover their deposit. An inspection contingency offers similar protection if the buyer’s own home inspector flagged the same issues. Without either contingency, the buyer’s earnest money may be at risk even though the loan failed through no fault of theirs. This is a strong argument for keeping both contingencies in place on any older property with a reasonable chance of deferred maintenance.
When Repairs Can’t Finish Before Closing
Weather, contractor scheduling, or material delays sometimes make it impossible to complete repairs before the closing date. An escrow holdback lets the transaction close anyway by setting aside money from the seller’s proceeds to guarantee the work gets done afterward. The funds are released only after the repairs are verified complete.
The required holdback is almost always larger than the estimated repair cost. Fannie Mae requires 120% of the estimated repair cost for existing construction, with total repair costs capped at 10% of the “as-completed” appraised value.1Fannie Mae. Requirements for Verifying Completion and Postponed Improvements USDA loans require at least 100% of the repair contract amount, and individual lenders often require more.2USDA Rural Development. Existing Dwelling and Repair Escrow Requirements The cushion above 100% covers cost overruns, unexpected labor charges, or material price increases.
Who funds the holdback is still a negotiation point, but the money typically comes out of the seller’s net proceeds at closing. If the seller’s proceeds are not enough, the buyer may need to contribute cash into escrow to make up the difference. Either way, the party responsible for the repairs in the signed addendum is the one effectively paying for them, with the holdback simply serving as the mechanism.
Completion deadlines are more generous than many buyers expect. Fannie Mae allows 180 days from the note date for postponed improvements on new construction and HomeStyle Refresh projects.1Fannie Mae. Requirements for Verifying Completion and Postponed Improvements USDA loans also allow up to 180 days unless extended.2USDA Rural Development. Existing Dwelling and Repair Escrow Requirements Individual lenders may impose shorter windows, so the actual deadline will appear in the holdback agreement.
Who Pays the Re-Inspection Fee
After the repairs are finished, the lender needs proof. The most common verification is a re-inspection by the original appraiser, who returns to confirm the flagged items were resolved and completes Form 1004D, the Appraisal Update and Completion Report.1Fannie Mae. Requirements for Verifying Completion and Postponed Improvements
This visit is not free. VA loans set the re-inspection fee at $150.3U.S. Department of Veterans Affairs. VA Appraisal Fee Schedules and Timeliness Requirements Conventional and FHA re-inspections typically run roughly $210 to $260, depending on whether the appraiser also performs a market update at the same time. Who pays this fee is negotiable and usually lands in the buyer’s or seller’s closing costs based on whatever the parties worked out in the repair addendum. If the addendum is silent, assume the buyer pays, since re-inspection costs usually attach to the loan file.
Fannie Mae now also accepts alternatives to a physical re-inspection, including digital photos, site videos, and virtual tools with verifiable metadata and geocode information. For repairs on existing homes, a borrower attestation letter with photos, paid invoices, and a qualified professional’s confirmation can substitute for Form 1004D entirely.1Fannie Mae. Requirements for Verifying Completion and Postponed Improvements These lower-cost alternatives can be worth asking the lender about before scheduling a full re-inspection visit.
Rolling Repairs Into the Mortgage Instead of Paying Cash
When repairs are extensive and neither side wants to write a large check, renovation loan programs let the buyer finance the work as part of the mortgage. The buyer still pays, but spreads the cost over 15 or 30 years instead of producing cash at closing.
- FHA 203(k) Limited: Covers up to $75,000 in non-structural repairs and improvements, with no minimum repair amount. It is specifically designed for fixes identified by a home inspector or FHA appraiser, which is a natural match for lender-required repairs.4HUD.gov. 203(k) Rehabilitation Mortgage Insurance Program Types
- FHA 203(k) Standard: For major structural work, with a minimum repair cost of $5,000 and no maximum beyond the area’s FHA loan limit. Requires a HUD-approved consultant to oversee the project.4HUD.gov. 203(k) Rehabilitation Mortgage Insurance Program Types
- VA Renovation Loan: Available to eligible veterans and finances up to $50,000 in renovation costs rolled into the purchase mortgage. The property must have been completed for at least one year.
These programs add time and paperwork to the closing. The 203(k) Standard involves a consultant, phased contractor draws, and multiple inspections. But when the lender’s condition list includes a new roof, foundation work, or a full electrical panel replacement, financing the repairs through the mortgage may be the only way to keep the deal alive.
One cost worth planning for either way: if the home was built before 1978 and the repairs involve peeling or chipping paint, EPA rules require a Lead-Safe Certified contractor to do the work.5US EPA. Lead Renovation, Repair and Painting Program A DIY paint fix will not satisfy the lender’s documentation requirement, so budget for the certified contractor from the start rather than paying twice.
Tax Angle for Whoever Ends Up Paying
How repair costs affect taxes depends on who paid and what the work involved.
If the buyer pays for repairs that were contractually the seller’s responsibility, those costs can be added to the buyer’s cost basis in the property. The IRS treats amounts the buyer pays on the seller’s behalf, including charges for improvements or repairs that the seller should have covered, as part of the purchase cost.6Internal Revenue Service. Basis of Assets A higher basis reduces taxable gain when the home is eventually sold.
For sellers, the treatment is less tidy. Repairs that merely maintain the home’s condition, such as patch painting or fixing a leak, generally do not increase basis. Improvements that add value, prolong useful life, or adapt the home to new uses, such as a full roof replacement or a new furnace, do qualify. Many lender-required repairs sit on this line. Keep detailed invoices and talk to a tax professional before claiming any of this work as a basis adjustment or a selling expense.