FHA Repair Escrow: How to Finance Repairs Without Paying Out of Pocket

If you’re using an FHA loan and the appraiser flags repairs, you may be able to finance those costs into your loan using an FHA repair escrow.

That means you could fix the property, meet FHA standards, and still avoid extra out-of-pocket costs at closing.

In this guide, we’ll break down:

• What FHA-required repairs are

• How FHA repair escrow works

• The math behind financing repairs

• Contract language you can’t skip

• Mistakes to avoid

• How to make this process work in your favor

Let’s dive in.

 

What Are FHA Required Repairs?

Before we get to repair escrow, it’s important to understand what counts as an FHA-required repair. These are not cosmetic upgrades. They’re issues flagged by the FHA appraiser that must be fixed before the loan can close. The goal is to meet FHA minimum property standards for safety, security, and structural soundness.

Common FHA-Required Repairs:

• Peeling paint on homes built before 1978 (lead-based paint risk)

• Missing or broken handrails on stairs

• Doors or windows that don’t lock

• Roof damage or active leaks

• Plumbing, electrical, or HVAC issues

• Heating systems that don’t function

The lender cannot close the loan unless these issues are resolved—or unless you finance them properly through the loan itself.

How FHA Repair Escrow Works

If the home appraises for more than the sales price, FHA allows you to roll the cost of appraiser-required repairs into the loan. This is where FHA repair escrow comes in.

📌 Example:

• Sales Price: $190,000

• Required Repairs: $5,000

• Appraised Value: $200,000
  Because the combined total ($195,000) is under the appraised value, you can finance the repairs.

Loan Formula:

(Sales Price + Repair Costs) × 96.5% = Loan Amount

So in the above scenario:
($190,000 + $5,000) × 96.5% = $188,175

That $5,000 is now part of your mortgage—not a separate cash expense at closing.

Contract Language Is Critical

Here’s a major mistake many buyers make: if your contract doesn’t say you’re paying for the repairs, the lender can’t include them in your loan.

The lender calculates the loan assuming you’re financing repairs. If the contract says the seller is paying, or doesn’t say anything at all, you’re out of luck.”
— Wade Betz, Mortgage Strategist at Winning With Wade

What to Include:

Ask your real estate agent to add this exact clause:
“Buyer to pay for FHA appraiser required repairs.”

That one line could save you thousands.

🚫 What You Can’t Do

1. Don’t complete repairs before the appraisal.

If the appraiser doesn’t see the issue, they won’t flag it—which means you can’t finance the fix.

2. Don’t finance non-required repairs.

New countertops, cosmetic upgrades, or personal preferences don’t qualify. Only FHA appraiser-required repairs are eligible.

What If Repairs Can’t Be Done Before Closing?

This is where FHA repair escrow really shines.

If repairs can’t be completed before closing because of weather, like snow, rain, or extreme conditions, FHA allows you to set aside funds in an escrow account. After closing, those funds are used to complete the work.

FHA Repair Escrow Basics:

• Only allowed for weather-related delays

• Funds are held by the lender

• Repairs must be verified post-closing

• Lender typically requires a follow-up inspection

Buying a HUD-Owned Home? Even Better.

HUD-owned homes often qualify for their own version of FHA repair escrow, and it’s even more flexible.

Benefits:

• You can finance 100% of the repair amount

• No cash out of pocket required

• Repairs can be done after closing

• Especially helpful for first-time buyers or those with limited cash

And more.

Step-by-Step: How to Finance FHA Repairs

1. Ask about possible FHA repairs upfront.
   Talk to your lender and agent as early as possible.

2. Write the right clause into your contract.
   Use: “Buyer to pay for FHA appraiser required repairs.”

3. Wait for the appraisal before making repairs.
   Don’t fix anything before the appraiser visits.

4. Verify the math works.
   Make sure sales price + repairs ≤ appraised value.

5. Complete repairs before closing or set up an escrow.
   If weather delays the work, get an FHA repair escrow set up.

6. Get final inspection.
   The lender must verify all repairs are complete before closing (or after escrow release).

Why FHA Repair Escrow Helps Buyers Win

Most buyers walk away from homes with needed repairs because they assume they’ll need thousands in extra cash.

FHA repair escrow solves that problem. It gives you:

• A way to buy homes others pass on

• More flexibility and less out-of-pocket cost

• One bundled mortgage that includes both purchase + repairs

For buyers who are handy or flexible, it’s a strategic advantage.

Common Mistakes to Avoid

❌ Completing repairs before the appraisal
❌ Failing to include contract language about repair responsibility
❌ Assuming all repairs can be financed (only appraiser-required count)
❌ Ignoring weather-based escrow opportunities

Final Thoughts: Make FHA Repair Escrow Work for You

If you’re buying a home with an FHA loan and the property needs repairs, don’t panic, and don’t walk away. FHA repair escrow may give you the option to handle the repairs without draining your bank account.

Just remember:

• Wait for the appraisal

• Use the right contract language

• Ask your lender early

• Don’t forget the escrow option for weather delays

For personalized help, schedule a quick call with Wade Betz at Winning With Wade, and let’s walk through your loan options together. With the right strategy, FHA-required repairs don’t have to be a dealbreaker—they can be built right into your financing.

📣 Frequently Asked Questions (FAQs)

Can I finance repairs into my FHA loan?
Yes, but only if they are flagged by the appraiser and your loan amount stays within the appraised value.

What is FHA repair escrow?
It’s an account set up to hold funds for repairs that can’t be completed before closing due to weather.

Can I include cosmetic repairs in my FHA loan?
No. Only required repairs flagged by the FHA appraiser can be financed.

Do repairs need to be completed before closing?
Yes, unless a weather-related escrow is approved by the lender.

What if I fix something before the appraisal?
Then it likely won’t be flagged, and you won’t be able to finance that cost into your loan.

Can I use FHA repair escrow on any home?
It’s most common with HUD-owned homes and weather-related delays. Talk to your lender about eligibility.

How much can I roll into my loan for repairs?
As long as the combined purchase price and repair costs are under the appraised value, you’re typically good.