What an FHA Appraisal Requires on a Condo and Who Pays for Repairs?

The Quick Read: The appraiser checks the unit’s value and its condition against FHA’s safe, sound and secure standard, and the building has to be eligible too. No federal FHA rule says the buyer or the seller pays for required repairs. The purchase contract decides, so the buyer and seller negotiate it.

The appraisal fee is normally a buyer cost. Required repairs are generally cured and verified before closing. Everything here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.

Two Separate Gates on Every FHA Condo Purchase

An FHA condo purchase has two reviews, and people mix them up. One looks at the building. The other looks at the unit. A clean unit in an ineligible building fails. A building that passes can still have a unit that fails.

Gate 1 is the project. HUD’s FHA condominium page says a project must meet approval requirements in Handbook 4000.1. Those cover insurance coverage, financial condition, nature of title, pending legal action, physical property condition and other factors affecting viability or marketability. The building is approved either through HUD’s own review or through a lender-run review.

Gate 2 is the unit. This is the appraisal. It reports value and condition for the one unit you are buying.

Across the wholesale programs Lendmire places FHA files with, project status gets checked early for exactly this reason. A buyer who falls for a unit before anyone confirms the building’s status can lose a lot of effort on a file that was never eligible. Plain fact.

What Does the Appraiser Actually Check?

The appraiser is an FHA Roster Appraiser who gives an opinion of value and reports the property’s physical condition. Minimum Property Requirements are the general standard: the home must be safe, sound and secure.

The appraiser is not a home inspector. HUD’s glossary says the observation is limited to readily observable conditions and is not as comprehensive as a licensed home inspector’s. The appraiser walks the unit, looks at what is visible and reports it. Hidden plumbing or wiring problems are an inspection question. Hire an inspector separately.

On a condo, the report is the individual unit form. Before starting, the appraiser needs the signed sales contract with all addenda, so those documents have to be in the file first.

In practice, items that draw attention include:

• Peeling or chipping paint, especially in older buildings
• Active leaks or water damage inside the unit
• Missing or broken safety features, such as smoke detectors or railings
• Damaged flooring that creates a hazard
• Signs of structural movement or failing building components visible from the unit
• Obvious deferred maintenance in common areas the appraiser sees on the way in

Paint is a recurring flagged item in pre-1978 buildings. Lenders widely report it as a common failure, but HUD’s text does not rank the failures, so treat that as pattern knowledge rather than a published statistic.

When Does a Flagged Item Become a Required Repair?

Not every flaw becomes a repair. HUD’s appraisal reporting guide describes when an appraisal is made “subject to” repairs: to protect the health and safety of occupants, protect the security of the property, correct structural deficiencies, or meet the Minimum Property Requirements. Minor wear and cosmetic issues are a different category. They get noted, and the lender decides what the file needs.

The lender, not the appraiser, makes the final call on what must be cured before closing. The appraiser reports. Underwriting decides.

Here is how a flagged item moves through a typical file:

1. The appraiser reports the condition and marks the appraisal as-is or subject to repairs.

2. The lender’s underwriter reviews the report and decides which items must be cured.

3. The buyer and seller negotiate who pays and who arranges the work.

4. The work gets done and documented with receipts, photos or a contractor invoice.

5. The lender confirms completion, which can mean a re-inspection by the appraiser.

6. The deal works to closing with the item cleared.

Repairs are generally completed and verified before closing. Some programs allow limited exceptions through a repair escrow or a renovation loan, and which of those is available depends on the lender and the loan. Ask early.

Who Pays for the Repairs?

No federal rule or FHA text assigns the repair bill to the buyer or the seller. HUD sets the condition standard. It does not say who funds the fix. That is a contract question between the two parties.

The usual outcomes are these:

A seller can decline. Then the buyer pays, renegotiates or walks. Those are the real choices. People often assume the seller “has to” fix everything. They do not. For a closer look at that question, see Lendmire’s piece Can a Seller Fix an FHA Appraisal Problem on a Condo?.

Seller Credits Have a Ceiling

Seller money is regulated even when repair responsibility is not. HUD’s FHA answers page says interested-party contributions that exceed actual costs, or exceed six percent, are inducements to purchase. They reduce the purchase price dollar for dollar when the adjusted value is computed, before the LTV percentage is applied. The same page says those contributions cannot be used for the borrower’s minimum required investment.

In the programs Lendmire places files with, the 3.5% minimum investment on a purchase with a 580 or higher decision score has to come from the buyer’s own funds. Seller credits can help with other costs, up to 6% of the price, but they cannot fill that piece.

One gap deserves a straight statement. The HUD material reviewed here does not say whether money a seller spends on repairs counts toward that 6% cap. Do not assume it does or that it doesn’t. Put the question to the lender before the contract is signed.

What If the Repair Belongs to the Association?

This is the condo-specific wrinkle, and most FHA repair articles skip it. If the problem sits in a common element, such as a roof, a hallway, a railing or a facade, neither the buyer nor the seller can fix it. The association controls it.

That stalls files. The unit owner has no power to schedule the work. The options are narrow:

• Ask the association or management company for the repair timeline and any approved budget.
• Ask whether a special assessment has been levied or is planned.
• Have the lender confirm whether the item actually blocks the unit appraisal or is a project-level issue.
• Renegotiate the price or walk, if the item threatens the deal and the association will not commit.

Visible deterioration in common areas can also feed back into the project review. HUD lists physical property condition and financial condition among the factors for project approval. Weak reserves can point to special-assessment risk, which changes the monthly budget a buyer takes on. Ask for the association’s budget and reserve information before you commit, not after the appraisal lands.

Building Eligibility: Where Unit-Perfect Files Still Fail

A building can fail on grounds that have nothing to do with the unit. Owner-occupancy is the clearest example. The 2019 federal rule on condominium project approval sets the general owner-occupancy percentage for an existing project at 50 percent unless specific lower-risk indicators are met. HUD review under its own process can allow as low as 35 percent. The rule also allows case-by-case exceptions.

Other project factors include insurance coverage, financial condition, title and pending legal action.

What If the Building Is Not on the Approved List?

Single-Unit Approval exists. The unit must be in a project that is not FHA-approved, be complete and ready for occupancy, and sit in a project with at least five dwelling units. It cannot be a manufactured home. The project must also meet a subset of approval requirements, including FHA insurance concentration, owner-occupancy and financial condition.

Do not confuse a case number with an approval. HUD’s FHA information page says a case number issued for Single-Unit Approval processing is not an approval of the unit or the project.

Detached “site condominiums” are treated differently. Under HUD’s proposed text they would not need project approval or Single-Unit Approval, but that is draft language. Confirm with the lender.

Three Scenarios, No Dollar Figures

A flagged item inside the unit. The appraiser notes peeling paint on a window sill in an older building. The lender makes it a required cure. The seller agrees to repaint and provides photos and a receipt. The lender clears it, and the file continues. Common, and usually the easy case.

A flagged common-area item. The appraiser notes a damaged stair railing in a shared hallway. The seller cannot fix it. The buyer asks the association for a repair date and gets no commitment. The lender has to decide whether it blocks the file. The buyer’s choices are to wait, renegotiate or walk. This one is hard, and the contract’s contingency language matters most here.

A seller who refuses. The appraisal requires a repair and the seller says no. The buyer can pay for it, ask for a price reduction (which also resets the LTV base) or exit if the contract allows. A seller credit may help up to the 6% limit, but it cannot cover the buyer’s minimum investment.

Value Gaps and the Buyer’s Copy of the Report

If the appraised value comes in under the contract price, the generic options are renegotiation, extra cash from the buyer, or a reconsideration request. Financing is based on the lesser of price or appraised value, so a short appraisal affects the cash the buyer brings.

Buyers are entitled to see the report. Under the CFPB’s ECOA valuations rule, lenders must give applicants free copies of appraisals developed for a first-lien loan on a dwelling, and must notify applicants of that right. The buyer typically pays for the appraisal but gets the report at no extra charge.

How This Fits the FHA Purchase Envelope

For context, across the wholesale programs Lendmire works with, an FHA purchase reaches 96.5% financing with a 3.5% minimum investment at a 580 or higher decision score. That is for an owner-occupied principal residence. County loan limits apply. Ratios start at 31/43 and can reach 40/50 with documented compensating factors, and the automated finding governs most files. There is an upfront mortgage insurance premium of 1.75% of the base loan and an annual premium that varies with term, amount and LTV. Details are on Lendmire’s FHA loan programs page, and every figure is subject to lender guidelines.

For a condo, the practical point is cash. Repairs, an appraisal gap and the minimum investment all pull from the same pool of the buyer’s money. Plan for all three before the contract goes out. Buyers weighing FHA against a conventional loan on a first condo can read Lendmire’s comparison of FHA and conventional appraisal rules for first-time condo buyers.

Rules That Are Changing

HUD says the Minimum Property Requirements have not had a comprehensive update in more than two decades. A Request for Information was published in the Federal Register, and HUD posted proposed updates on its Drafting Table with a feedback window running through November 6. The proposal includes condition and quality rating floors and would shift terminology.

It is a draft, not final policy. Current rules apply until HUD finalizes changes. A lender will tell you which standard governs your file.

Key Terms Defined

Minimum Property Requirements (MPR): HUD’s general standard that an FHA-insured home must be safe, sound and secure.

FHA Roster Appraiser: An appraiser approved to report value and condition on FHA-insured loans.

Single-Unit Approval (SUA): A route for financing one unit in a condo project that is not on HUD’s approved list, with conditions.

Interested-party contribution: Money from a seller or other party with a stake in the sale, capped at 6% before it counts as an inducement.

Minimum required investment: The buyer’s own cash, at least 3.5% of the adjusted value, that seller credits cannot replace.

Subject-to appraisal: An appraisal made on the condition that stated repairs are completed.

Protecting Yourself in the Contract

• Include the FHA amendatory clause and a repair addendum that says who pays if the appraisal requires repairs.
• Write down what happens if the seller refuses and whether the buyer can exit.
• Ask the lender whether seller-funded repairs count toward the 6% cap.
• Request association budget, reserve and assessment information early.
• Hire a licensed home inspector. The appraisal is not one.

Call in this order: the lender first (project status and repair rules), then your agent, then the association or management company, then the appraiser through the lender if a question about the report comes up.

If you are buying a condo and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD FHA Condominiums page

2. HUD Handbook 4000.1 Update 14 glossary

3. HUD (hud.gov)

4. HUD answers: interested-party contributions

5. Federal Register: Project Approval for Single-Family Condominiums

6. HUD FHA information messages

7. CFPB ECOA valuations factsheet