The Quick Read: The appraiser describes what is wrong with the home, rates its condition, and reports the value either “as is” or “subject to” repairs. The appraiser does not decide whether the loan closes. The lender and the agency that will buy the loan decide that, and they focus on safety, soundness and structure. Minor wear usually stays a note in the report. A serious defect becomes a condition you must clear first.
Many buyers assume a conventional loan means nobody looks at the house. That is wrong. The appraisal is a condition review as well as a value opinion. On the files Lendmire arranges, a serious repair flag in the report adds conditions the file must clear. The good news is that the rules are predictable once you see the chain of decisions.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
This article walks through that chain step by step. It covers what the appraiser records, how the C1 to C6 scale works, where Fannie Mae and Freddie Mac differ, and what your options look like when something gets flagged. If you are also weighing loan structure, Lendmire’s conventional loan programs page covers the basics.
Key Takeaways
- The appraiser reports and rates. The lender and the investor decide what is required.
- Safety, soundness and structural problems trigger repairs. Cosmetic wear usually does not.
- Fannie Mae blocks only the worst rating, C6. Freddie Mac blocks C5 and C6 until cured.
- A “subject to” report means repairs must be done and documented before the loan is sold.
- You are entitled to a copy of the appraisal.
Who Decides What Happens to a Flagged Repair?
Three parties touch a flagged repair, and each has a different job. The appraiser documents the condition. The lender and underwriter turn that documentation into loan conditions. The investor, meaning Fannie Mae or Freddie Mac, sets the eligibility rules the loan must meet to be bought.
| Party | Role | What it cannot do |
|---|---|---|
| Appraiser | Rates condition, photographs, comments | Approve or deny the loan |
| Lender | Sets conditions, verifies completion | Ignore investor rules |
| Fannie Mae / Freddie Mac | Sets eligibility standards | Inspect your home |
This split explains a lot of confusion. An appraiser may note worn carpet or a minor plumbing leak, yet the loan moves ahead if the lender and investor see no eligibility problem. Another file with a more serious note might be held up. The difference lies in the rating, the wording of the report, and which agency’s rules apply.
How Does the Appraiser Record a Defect?
The appraiser records a defect in three places: the written comments, the photos, and the condition rating. Fannie Mae expects the appraiser to separate items needing immediate repair from deferred maintenance that may not need immediate repair, per its appraisal and property FAQ.
The improvements section must be specific. It should comment on needed repairs, added features and modernization. The report must also carry interior photos of the kitchen, all bathrooms, the main living areas and below-grade areas, with examples of physical deterioration if present, under the Selling Guide’s report forms and exhibits rules.
Then comes the value conclusion. The appraiser reports value either “as is” or “subject to” completion of repairs or an inspection. That one phrase drives most of what happens next.
One more point: the appraiser is not a home inspector and is not an expert in every field. When an appraiser sees something like mold, an active roof leak or foundation settlement and cannot judge whether it needs immediate repair, the property is appraised subject to an inspection by a qualified professional.
What Do the C1 to C6 Condition Ratings Mean?
The condition rating is a six-step scale from C1 (best) to C6 (worst). Fannie Mae and Freddie Mac jointly standardize it, along with the Q1 to Q6 quality scale, through the Uniform Appraisal Dataset specification. The ratings describe physical condition on an absolute basis as of the effective date, not relative to nearby homes.
The two lowest ratings matter most. Per Freddie Mac Guide Exhibit 36:
- C5: obvious deferred maintenance and some significant repairs needed. The home is still usable as a residence.
- C6: damage or deferred maintenance severe enough to affect safety, soundness or structural integrity.
Condition and quality are different things. Condition is how well the home has been maintained. Quality is the original materials and construction. A custom home with strong finishes can still carry a poor condition rating if it was neglected.
C3 trips people up too. Freddie Mac staff have noted that appraisers sometimes read C3 as “average” when it really means well maintained with minimal depreciation. A C3 is a good result.
Where Fannie Mae and Freddie Mac Disagree
Here is the catch: C5 is treated differently by the two agencies. Under Fannie Mae Selling Guide B4-1.3-06, loans on C6 properties are not eligible for sale to Fannie Mae. Properties rated C1 through C5 are eligible in “as is” condition. Safety, soundness or structural deficiencies must be repaired, to a resulting rating of at least C5, before the loan is sold.
Freddie Mac is stricter. A property with deficiencies consistent with a C5 or C6 rating is not acceptable collateral unless all the issues behind the rating are cured. One investor announcement of Freddie Mac policy says all issues must be cured before the note date.
| Rating | Fannie Mae | Freddie Mac |
|---|---|---|
| C1 to C4 | Eligible as is | Generally acceptable |
| C5 | Eligible as is | Cure required |
| C6 | Not eligible until repaired | Cure required |
Some websites say Fannie Mae wants a C5 improved to C4. That conflicts with the Guide. Another claim says one bad room makes the whole house C6. Fannie Mae treats C6 as an exception to its rule that one or two minor problem areas should not pull down the overall rating. In other words, serious safety defects do count heavily. Still, the safe move is to ask your loan officer which agency the loan is likely to be sold to.
What Gets Flagged and What Doesn’t?
Minor wear usually stays “as is.” Safety, soundness and structure usually become conditions. Fannie Mae’s completion and postponed improvements rules give examples on both sides.
| Usually just noted | Usually conditioned |
|---|---|
| Worn floor finishes or carpet | Foundation settlement |
| Minor plumbing leaks | Water seepage |
| Holes in window screens | Active roof leaks |
| Missing handrails | Worn roof shingles |
| Cracked window glass | Inadequate electrical service or plumbing fixtures |
Treat that table as a guide, not a guarantee. A different appraiser or underwriter may still ask for a fix, because the lender decides whether more action is needed to meet safety, soundness and structural requirements. Appraisers also flag site issues. Freddie Mac requires a “subject to” inspection for conditions such as expansive soils, underground mines or subsidence.
For minor items reported as is, the appraiser comments on the effect on value and marketability. The lender need not require repair before the sale to Fannie Mae. The lender may choose to escrow for those items after closing.
“As Is” vs. “Subject To”: What Changes?
“As is” means the home is valued in its present condition and you move on. “Subject to” means the value assumes certain repairs get finished. The lender must verify completion before the loan is sold.
Here is the usual sequence on a “subject to” file:
1. The appraiser inspects and reports a defect, with photos and comments.
2. The underwriter reviews the report and adds a repair condition.
3. You and the seller decide how the repair gets handled.
4. Work is completed by a contractor or licensed professional.
5. Completion is documented, usually on Form 1004D (the Appraisal Update and/or Completion Report).
6. The lender clears the condition, and the loan moves toward closing.
Documentation can vary. Fannie Mae’s valuation FAQ says a borrower attestation letter can replace a 1004D in some situations. Freddie Mac policy, as relayed in an investor announcement, calls for an inspection report stating repairs are not needed, or an inspection report plus invoices showing the repairs are done. Those documents must be dated before the note date, and the licensed professional’s license number is required where applicable.
A “subject to” report adds steps before closing. Contractor work, a re-inspection or a 1004D, and invoices all have to line up before the note date or loan sale. Build that into your contract dates with your agent.
Appraisal age matters as well. The property must be appraised within 12 months before the note date. If the appraisal is more than four months old, an update with an exterior inspection and market data review is required, per Fannie Mae’s appraisal age rules.
A Worked Example
Picture a buyer using a 95% purchase loan on a one-unit primary residence. The appraiser finds an active roof leak with water staining below. The report comes back “subject to” repair of the roof, with photos of the stained ceiling.
The underwriter adds the condition. Because mortgage insurance applies above 80% LTV, the buyer is already watching the loan amount closely, and the appraiser’s value matters. The buyer asks the seller to repair the roof before closing. The seller hires a roofer, and the work is documented on a completion report. The lender clears the condition. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
If the seller refuses, the buyer has choices. Ask for a price reduction or a credit, if the loan program and contract allow. Try an escrow arrangement, if the lender permits one. Walk away under the contract’s appraisal contingency, if one exists. Those options depend on the lender, the investor and your purchase contract.
Repair requirements can also be negotiated with the seller, or the seller can credit or escrow funds. That is general practice, so check with your agent and lender before you count on it.
What About No-Appraisal Loans?
Some loans use value acceptance or property data collection instead of a full appraisal. Repairs still matter. Fannie Mae’s valuation FAQ says repairs needed for eligibility must still be completed before sale. It also says the 1004D cannot be used when there is no appraisal.
Fieldwork is warranted when the purchase contract stipulates repairs that are not minor or may affect safety, soundness or structure. In that case the property must be appraised “subject to” completion. A waiver does not make a defective house eligible.
Can You Buy a Home That Needs Major Work?
Sometimes. A renovation product can make an otherwise ineligible home work. Freddie Mac’s CHOICERenovation can make C5 and C6 properties eligible when the renovation cures all the issues. The appraisal is “subject to completion,” and the rating reflects the hypothetical completed condition, per Freddie Mac’s CHOICERenovation FAQ. Fannie Mae’s HomeStyle is the counterpart.
Postponed repairs are a narrower tool. Generally, repairs must be complete when the loan is sold. Some websites quote holdback percentages and completion windows, but those numbers are not confirmed for existing homes on the current Fannie Mae page. Ask your lender what is allowed on your file rather than relying on an online figure.
Condition Problem or Comps Problem?
A condition problem and a value problem can look alike, but they are different. A condition flag says something is wrong with the house. A low value says the house is worth less than the contract price. Condition does affect the appraiser’s opinion of value, and the loan amount follows value. But a clean C3 home can still come in low because of the comparable sales, and a C5 home can come in at the contract price.
Read the report for both halves. On the condition side, check the condition rating, the repair comments, and whether the value is reported “as is” or “subject to.” On the value side, look at the comparable sales the appraiser chose. Are they recent, nearby and similar in size and age? Did the appraiser adjust for differences in condition between those homes and yours? Then compare the final value conclusion to your contract price. If the value is short, ask whether the gap comes from the comps or from the repairs, because the fix is different for each.
How to Prepare Before the Appraiser Arrives
You cannot control the rating, but you can avoid avoidable flags.
- Give the appraiser access to every area, including the attic, crawl space and utility rooms.
- Fix small safety items first, such as missing handrails or cracked glass.
- Provide a list of recent improvements, with dates if you have them.
- Make sure utilities are on so systems can be checked.
- Seller or buyer, ask the agent to confirm any known leaks or damage in writing.
Your Right to See the Report
You have a right to a copy of the appraisal. Under the CFPB’s ECOA appraisals rule summary, the creditor must give you a free copy of every appraisal or written valuation, and the timing of delivery depends on the file and the lender. You may waive the timing so copies arrive at closing, but not the copy itself. The lender may charge a reasonable fee for the cost of the appraisal itself. Read it. The condition notes tell you what to negotiate.
Key Terms Defined
Appraisal: A professional opinion of a home’s value, plus a record of its condition.
C1 to C6: The standardized condition scale, from like-new (C1) to severe damage (C6).
As is: A value conclusion based on the home’s current condition.
Subject to: A value conclusion that assumes named repairs or an inspection will be completed.
Form 1004D: The report that confirms repairs are done or updates an older appraisal.
Note date: The date you sign the loan note, which sets the deadline for repair documentation.
Deferred maintenance: Upkeep that was put off, such as worn finishes or aging roofing.
Conventional vs. FHA and VA
Government-backed loans use their own minimum property standards, and those standards differ from the conventional rules above. Do not assume the same repair list applies. Lendmire’s piece How a VA Loan Appraiser Applies Minimum Property Requirements shows how one of those programs works. If you are comparing programs, ask your loan officer to walk through each one for your property.
Frequently Asked Questions
Can a conventional appraiser require repairs?
The appraiser reports and the lender conditions. On a conventional loan, the appraiser flags safety, soundness or structural issues and reports the value “subject to” repair. The lender then requires completion before the loan is sold. Cosmetic wear typically does not trigger that step.
Does a C5 rating kill my loan?
It depends on the agency. Fannie Mae treats C1 through C5 as eligible as is, and only C6 is blocked until repaired. Freddie Mac treats C5 and C6 as ineligible unless all the issues behind the rating are cured. Your lender can tell you which path your file is likely to take.
Can I close before the repairs are finished?
Usually not on a “subject to” file. Generally, required repairs must be complete and documented when the loan is sold. Freddie Mac policy, as relayed by an investor, wants cure documentation dated before the note date. Renovation products are the main alternative, subject to lender guidelines and full file review.
Can I see the appraisal?
Yes. The lender must give you a free copy of every appraisal or written valuation, promptly and ahead of closing. You can waive the timing but not the copy.
What if the seller won’t fix what the appraiser found?
You can renegotiate the price, ask for a credit, look at an escrow arrangement if the lender allows it, switch to a renovation loan, or exit under your contract’s appraisal contingency. Which of these is open depends on your lender, the investor and your contract.
Next Step
If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Appraisal and Property FAQ
2. Fannie Mae Selling Guide B4-1.3-05
3. Fannie Mae Selling Guide B4-1.2-01
4. Freddie Mac/Fannie Mae UAD Specification
5. Freddie Mac Guide Exhibit 36
6. Fannie Mae Selling Guide B4-1.3-06: Property Condition and Quality
7. Fannie Mae Selling Guide B4-1.2-05: Verifying Completion and Postponed Improvements
9. Fannie Mae’s appraisal age rules
11. CFPB: ECOA Appraisals Rule, What It Means for Consumers
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can Retirees Get a Conventional Loan on Pension Income? · How PMI Is Added to the Payment on a Conventional Loan? · How to Refinance Into a Conventional Loan and Drop Mortgage Insurance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.