Can a Seller Fix an FHA Appraisal Problem on New Construction?

The Quick Read: Usually, yes, and on a new build the builder is the one who has to do it. The FHA appraiser lists any repairs needed to meet HUD’s minimum standards, and the lender conditions the loan on them. The builder cures the items, and the work gets documented before closing. A narrow escrow path exists for minor exterior items that weather delays. Anything touching safety or soundness has to be finished first.

Why a New Build Can Still Get Flagged

New construction gets flagged more often than buyers expect. The FHA appraisal does two jobs. It sets a value, and it checks the home against HUD’s Minimum Property Requirements and Standards (MPR/MPS), which are HUD’s baseline for safe, sound, marketable housing.

It is not a home inspection. Buyers should still hire their own inspector, new home or not.

When the appraiser finds a problem, the same rules apply as for a resale. The appraiser reports the repairs, estimates the cost to cure, takes photos, and conditions the appraisal on the fixes. Then the lender decides which repairs are truly required. The appraiser recommends. The lender decides.

Required repairs are limited to things that protect safety, security, soundness, and marketability. Paint color does not make the list. Peeling exterior paint that exposes wood can.

If you are still choosing a loan type, Lendmire’s FHA loan programs page covers the basics. Across the wholesale programs Lendmire places FHA files with, a 3.5% minimum investment at a 580 decision score is the starting point on a purchase. All of that is subject to lender guidelines and full file review.

Who Actually Fixes It: The Builder, Not You

On a new build, the builder signs a warranty. Form HUD-92544, the Warranty of Completion of Construction, has the builder certify the home was built to HUD’s property requirements and standards. The builder agrees to fix defects in equipment, material, or workmanship at the builder’s own expense.

The warranty runs one year from transfer of title. For items finished after title transfers, it runs one year from each item’s completion.

That is why the answer differs from a resale. A resale seller can simply decline a repair request. A builder who wants the FHA buyer’s business has already signed paperwork promising the home meets the standard.

HUD also trimmed this area. A Federal Register final rule dropped the old 10-year protection plan requirement and kept the one-year Warranty of Completion. So the “10-year warranty is required” idea is a myth now.

The Process, Step by Step

Here is how a flagged item normally moves through.

1. Builder certification. Before appraising a proposed, under-construction, or newly built never-occupied home, the appraiser must receive the builder’s executed certification of plans, specifications, and site (Form HUD-92541).

2. Appraisal. The appraiser values the home and checks it against the standards.

3. Conditions. Required repairs become conditions on the appraisal or commitment.

4. The builder does the work. The appraisal is not a negotiation. Whoever controls the work completes the list.

5. Underwriter clears the condition. Then the loan moves toward closing and insurance endorsement.

For the current form rules, check HUD’s Handbook 4000.1 update notes. HUD also lets a qualified tradesperson or contractor provide certain required new-construction inspections under federal regulation, so a repair sign-off does not always mean a HUD appraiser returns.

What Kind of Problem Is It?

The problem type decides whether a fix is possible at all.

Notice the last row. A repair cures a condition. It cannot cure a value gap.

When Can Work Wait Until After Closing?

Sometimes. FHA repair-escrow language lets a lender hold money in escrow for incomplete construction that cannot be finished before closing. The home must be habitable and safe on closing day. The escrowed funds must cover the cost, and the buyer’s own labor cannot count.

Think landscaping or exterior paint held up by winter. Do not think a missing guardrail or an unfinished furnace.

Lenders add their own limits on top of HUD’s rules. Some cap the dollar amount, and some allow only weather-related items. So availability varies from one lender to another. Your loan officer can tell you what applies to your file before you sign a contract.

Does the Builder Have to Fix It?

Two things control the answer: HUD’s warranty paperwork and your purchase contract.

The warranty promises compliance and covers defects after title transfers. The contract controls what happens before closing: who pays, what the deadlines are, and what your appraisal and financing contingencies allow.

If the builder refuses, you have a few choices:

• Ask for a price reduction (it won’t cure a standards problem, but it may compensate you).
• Switch to a different property.
• Walk away, if your contract’s contingencies allow.

HUD has no rule on a buyer paying for a builder’s defect. Your contract and your agent decide that. Many buyers also hit a wall when a repair sits under the contract’s financing contingency. Read it before the appraisal comes back, not after.

What If the Problem Is Value, Not Condition?

A low appraisal is a separate fight. FHA financing is based on the lesser of the appraised value or the purchase price, so a value shortfall changes how much you can borrow. With a 96.5% maximum financing and a 3.5% minimum investment, the numbers are tied to that lesser figure, per the program parameters Lendmire’s network works from.

Repairs do nothing here. The usual options are:

• The builder lowers the price to match the value.
• You bring more cash to cover the gap.
• You renegotiate terms.
• You walk, if the contract permits.

Builders sometimes offer credits instead of price cuts. Seller and interested-party contributions are capped at 6% of the price on FHA files in the programs Lendmire places. But a credit that exceeds the cap gets reduced from the sales price. Ask your lender how a credit would be treated before you accept it.

A Worked Scenario

Picture a buyer under contract on a nearly finished home from a production builder. The appraiser flags a drainage problem at the back of the lot and a missing stair railing. The value comes in at the contract price.

The lender confirms both items are required, since they affect safety and soundness. The builder grades the lot and installs the railing. The appraiser, or another qualified party, files a completion report. The underwriter clears the condition and the deal works on to closing.

Now change one fact. The drainage fix cannot be finished in frozen ground. The home is safe, so the lender may allow an escrow for that item if its own rules permit it. The railing still has to be done before closing.

Change another. The appraisal comes in below the contract price. Nothing the builder repairs changes that. The buyer is now negotiating price, not repairs.

Who Does What

• Buyer: reads the contract, gets an independent inspection, and tracks deadlines.
• Builder: completes the listed items and provides the executed warranty and certification paperwork.
• Agent: keeps the builder moving and watches the contract dates.
• Appraiser: reports conditions and, where applicable, verifies completion.
• Lender: decides which repairs are required and clears the conditions.

One practitioner observation: the files that stall are rarely the ones with a big defect. They are the ones where a small condition sits unassigned for days because nobody knew who owned the follow-up. Naming a person on day one prevents most of that.

Re-inspection and paperwork can also push back a closing date. HUD publishes no standard time for it, so plan for some slack around contract deadlines and any other deadlines your lender discusses with you.

Myths Worth Dropping

• “New construction automatically passes.” It does not. A new build that misses the standards is conditioned like any other home.
• “The appraiser decides which repairs are mandatory.” The lender does.
• “Any repair can be escrowed.” Only minor items on a home that is safe and habitable at closing.
• “A price cut fixes a standards problem.” It does not.
• “The FHA appraisal replaces an inspection.” It never does.

Other programs run on their own rules, so don’t blend them. USDA Rural Development, for example, ties new-construction eligibility to its own warranty and inspection options. Conventional loans use a separate framework for postponed improvements.

Key Terms Defined

MPR/MPS: HUD’s Minimum Property Requirements and Standards, the baseline a home must meet for FHA insurance.

Condition: A requirement the lender attaches to the loan that must be satisfied before closing.

Warranty of Completion (Form HUD-92544): The builder’s promise to fix defects at the builder’s expense for one year.

Completion report: The document showing required repairs are finished.

Value shortfall: An appraisal that comes in below the purchase price.

If you are buying a home 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. 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 broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Form HUD-92544, Warranty of Completion of Construction

2. Federal Register final rule on streamlining FHA warranty requirements

3. HUD Handbook 4000.1 update transmittal

4. USDA Rural Development new construction training