Conventional loans · Fannie Mae B4-1.2-05Repairs not finished by closing: escrow holdback and proof of completion
On a Fannie Mae loan it depends on what the appraisal found. Minor conditions and deferred maintenance that do not affect safety, soundness or structural integrity – worn carpet, a small plumbing leak, torn screens, a missing handrail, cracked window glass – are reflected in the value and the appraisal is completed "as is"; the lender does not have to get them repaired, and may at its own discretion escrow funds for work after closing. Items that do affect safety, soundness or structural integrity – foundation settlement, water seepage, an active roof leak, worn shingles, inadequate electrical or plumbing – make the appraisal "subject to" the repairs, and the lender must verify completion before selling the loan: by Form 1004D from the appraiser (site visit or virtual inspection) or by a borrower attestation letter with photos plus a professional's signature, a professional report or paid invoices. Only new or proposed construction can close with postponed improvements under Fannie Mae's holdback rules: the work must be in the sales contract, delayed for a valid reason such as weather or material shortages, not stop the occupancy permit, cost no more than 10% of the as-completed value and be finished within 180 days of the note date, with 120% of the estimated cost held in a custodial completion escrow.
What the appraisal found decides the path
1. Minor items, "as is"
Wear and tear that does not affect safety or structure is priced into the value. No repair required; the lender may escrow for it at its discretion.
2. Safety items, "subject to"
Foundation, water seepage, roof leaks, electrical or plumbing problems must be repaired and verified before the lender sells the loan.
3. New construction
Postponed items may be finished after closing under the holdback rules below.
Proof that the work is done
Form 1004D
The appraiser's completion report – after a site visit or a virtual inspection, with visually verifiable exhibits.
Borrower attestation
Existing homes: the borrower's signed letter, photos of the work, and a professional's signature, a professional report or paid invoices.
Borrower/builder letter
New construction: both sign that the home was built to the plans and change orders, with interior and exterior photos.
Inspection report
When a professional inspection was required, the lender reviews the report to decide whether repairs follow.
New-construction holdback (postponed improvements)
At closing
Escrow 120% of the estimate
Or 100% of a guaranteed fixed-price contract from the builder; held in a custodial account under a signed escrow agreement.
Limits
≤ 10% of value
The work is part of the sales contract, delayed for a valid reason and does not affect the occupancy permit.
≤ 180 days after the note
Work finished
Confirmed by Form 1004D or an acceptable completion alternative.
Final draw
Escrow released
Extra funds go out with the final draw; the final title report shows no mechanic's liens.
What the TC can do
- Ask the lender early whether the appraisal is "as is" or "subject to" – it decides whether repairs must be done before closing.
- Get the contractor's paid invoices and photos to the lender as soon as the work is finished.
- Leave time for the appraiser's re-inspection before the closing date.
- At the final walkthrough, confirm the agreed repairs are actually done.
Questions buyers and agents ask
Can repairs be completed after closing on a conventional loan?
For minor items that do not affect safety, soundness or structural integrity, the appraisal is "as is" and the lender may escrow funds at its discretion. Safety items must be verified as complete before the lender sells the loan; true holdbacks for postponed work are for new construction (Fannie Mae B4-1.2-05).
What is Form 1004D?
The Appraisal Update and/or Completion Report: the appraiser confirms that the repairs or construction required in the appraisal were completed, after a site visit or a virtual inspection.
How much is held back in an escrow holdback for new construction?
120% of the estimated cost of the postponed work, or the full amount of a guaranteed fixed-price contract; the work cannot exceed 10% of the as-completed value and must be finished within 180 days of the note date.
Related guides
ClosingCode's checklist carries the repair request through to the final walkthrough, with a ready message reminding the buyer to check that agreed repairs are done.
Start free trialSource: Fannie Mae Selling Guide B4-1.2-05, Requirements for Verifying Completion and Postponed Improvements (12/10/2025), selling-guide.fanniemae.com, read October 25, 2026.
General information about Fannie Mae conventional loans, not legal or financial advice. FHA, VA and USDA have their own repair and escrow rules, and each lender can be stricter. ClosingCode is software; it is not a lender or law firm. This guide is not a substitute for the advice or services of an attorney.