When Construction Must Be Complete
Fannie Mae's basic rule is simple: your home must be finished before they buy your loan from the lender. This applies whether you're building new construction, renovating an existing home, or making repairs that affect safety and structural integrity.
Say you're buying a new home that's 95% complete but missing interior trim and final landscaping. Your lender cannot sell the loan to Fannie Mae until those items are finished and verified complete. The appraiser based their value on a completed home, so Fannie Mae expects a completed home.
The verification process requires documentation. Your lender needs proof that work was done according to the original plans and specifications. This isn't just a formality — it protects both you and Fannie Mae from incomplete or substandard work.
How Lenders Verify Completion
Lenders have three main options to verify that work is complete. The most common is Form 1004D, completed by a licensed appraiser who visits the property to confirm everything matches the original appraisal.
The appraiser can also complete Form 1004D through virtual inspection using photos, videos, or other digital methods. The key requirement is "visually verifiable exhibits" — clear documentation that shows the work was completed properly.
For new construction, lenders can accept a borrower/builder attestation letter instead of Form 1004D. This letter must include your name, the property address, certification that construction matches the plans and specifications, signatures from both you and the builder, and exterior and interior photos of the completed home.
For existing home repairs or alterations, you can provide a borrower attestation letter. This requires your signature, photos of the completed work, and either a qualified professional's signature, a professional inspection report, or paid invoices for the work.
Required Documentation
The specific paperwork depends on your situation, but here's what lenders typically need:
- Form 1004D completed by the original appraiser or a substitute appraiser
- Digital photos showing completed work with metadata and GPS coordinates
- Signed attestation letters with required certifications and signatures
- Professional inspection reports for specialized work
- Paid invoices and receipts for completed repairs or improvements
- Final title report showing no outstanding mechanic's liens
All digital exhibits must remain accessible to Fannie Mae for the life of your loan. This means photos and videos need proper metadata and cannot be altered or edited. The documentation becomes part of your permanent loan file.
When Minor Issues Don't Matter
Not every property defect requires completion before closing. Fannie Mae distinguishes between issues that affect safety and structural integrity versus normal wear and tear.
Minor conditions like worn carpet, small plumbing leaks, holes in window screens, missing handrails, or cracked window glass typically don't require repair before closing. The appraiser notes these items and considers their impact on value, but you can close with an "as-is" appraisal.
Your lender might still require an escrow account for these minor items, but they can sell your loan to Fannie Mae before the work is complete. The key test is whether the issue affects the home's safety, soundness, or structural integrity.
Major issues like foundation problems, active roof leaks, inadequate electrical service, or water seepage must be fixed before closing. These create "subject to" conditions in the appraisal that must be resolved.
Postponed Improvements for New Construction
Fannie Mae allows some flexibility for new construction through their postponed improvements program. You can close on an incomplete home if the remaining work meets specific criteria.
Acceptable postponed items include landscaping, driveways, sidewalks, final grading, and other exterior work that doesn't affect habitability. Interior work like missing trim, unfinished basements, or incomplete second floors may also qualify if they don't prevent occupancy.
The cost of postponed work cannot exceed 10% of the home's completed appraised value. On a $400,000 home, you could postpone up to $40,000 worth of improvements. This calculation uses the "as completed" value from your appraisal.
You must complete all postponed work within 180 days of your loan closing date. This timeline is firm — extensions are not permitted under Fannie Mae guidelines.
Escrow Requirements for Postponed Work
When you postpone improvements, your lender establishes an escrow account funded at closing. The escrow amount equals 120% of the estimated completion costs, unless you have a guaranteed fixed-price contract with your builder.
Say your postponed landscaping costs $15,000. Your lender would escrow $18,000 (120% of the estimate) to cover potential cost overruns. With a fixed-price contract, the escrow would be exactly $15,000.
The escrow account must meet Fannie Mae's custodial account requirements. Your lender cannot simply hold the funds in their operating account — it must be a separate, protected account that follows specific guidelines outlined in [[A4-1-02]].
You and your lender sign an escrow agreement detailing how funds will be managed and disbursed. This agreement cannot interfere with your mortgage insurance or title insurance coverage.
HomeStyle Refresh Postponed Improvements
HomeStyle Refresh loans follow different rules for postponed improvements. These loans fund renovations on existing homes, and Fannie Mae allows more flexibility in what work can be postponed.
The 180-day completion timeline remains the same, but the escrow requirements differ. Lenders escrow the full cost of improvements plus up to 20% contingency reserve. There's no 10% limit based on home value like with new construction.
Completion verification requires a certificate of completion rather than Form 1004D. This certificate must include your name, property address, description of completed work, contractor information, and your signature confirming satisfactory completion.
Any leftover escrow funds after completion must be applied to reduce your loan principal balance. You cannot receive cash back from the escrow account, and sweat equity or do-it-yourself work is not reimbursable.
Common Problems and Pitfalls
The biggest mistake borrowers make is underestimating completion timelines. Weather delays, permit issues, and contractor scheduling can easily push work beyond the 180-day deadline. Plan for delays and start postponed work immediately after closing.
Documentation problems frequently cause headaches. Photos without proper metadata, altered digital images, or missing signatures can invalidate completion verification. Follow the documentation requirements exactly as written.
Mechanic's liens create serious complications. If contractors file liens for unpaid work, your lender cannot release escrow funds until the liens are resolved. This can delay completion verification and create title insurance issues.
Some borrowers assume they can change the scope of postponed work after closing. The improvements must match what was originally approved and escrowed. Significant changes may require new appraisals and additional documentation.
Virtual inspections and attestation letters are not permitted for HomeStyle Renovation transactions. These loans require traditional Form 1004D completion verification with physical inspections.
References
For the official guidelines, see B4-1.2-05: Requirements for Verifying Completion and Postponed Improvements in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B4-1.2-05, Requirements for Verifying Completion and Postponed Improvements (12/10/2025)
Form 1004D and Completion Alternatives
Verification of Completion: New or Proposed Construction
Verification of Completion: Existing Construction
Postponed Improvements
Uniform Appraisal Dataset (UAD) 3.6 Policy
Overview
Generally, improvements, alterations, and repairs on the subject property must be complete when the loan is sold to Fannie Mae. Lenders must obtain evidence of completion and Fannie Mae allows for a variety of methods depending on the type of valuation method and condition (completion, alteration, or repair) that must be confirmed.
Additionally, in some circumstances, Fannie Mae allows a loan to be sold prior to improvements or repairs being completed if the lender complies with the requirements related to postponed improvements.
Form 1004D
The Appraisal Update and/or Completion Report (Form 1004D) is used to update an appraisal or provide confirmation that the requirements or conditions in an appraisal report have been met (such as completion of construction or repairs).
The appraiser can complete the Completion Report section of Form 1004D based on an on-site visual inspection of the property. The appraiser may also complete the form based on alternative methods, such as virtual inspections, digital photos, site videos, or other technological solutions. All completion documentation must include one or more visually verifiable exhibits. A link to the digital exhibits from within the form is acceptable but must be accessible by Fannie Mae for the life of the loan. These exhibits must be unaltered and able to be authenticated using metadata and the geocode for the subject property.
See
, for certifications completed by substitute appraisers.
Attestation Letters
Fannie Mae also permits other completion alternative methods - attestation letters - to verify completion of construction, alteration, or repairs in lieu of Form 1004D.
Borrower/builder attestation letter: For new or proposed construction, a letter is permitted to confirm the property was completed and constructed in conformity with the plans and specifications, amendments, and change orders. The borrower/builder attestation letter must include (at a minimum) the following items:
borrower name,
property address or legal description if the address is not available,
certification language that the property was constructed in conformity with the plans and specifications including any amendments or changes,
signatures and dates by the borrower(s) and builder, and
exterior and interior photos of the property (see ).
If a letter signed by both parties is not obtainable, then a Form 1004D completed by the appraiser is required.
Borrower attestation letter: A letter is permitted to confirm completion of certain alterations or repairs for existing construction. The letter must include (at a minimum) the following:
borrower name;
property address;
certification language that the alteration or repair was satisfactorily completed;
signatures and date of the borrower;
visually verifiable exhibits of the completed work; and
one of the following
signature of the qualified professional,
a professionally prepared report, or
paid invoices for the alterations or repairs.
When either of these attestation letter options is used, a link within the letter to any digital exhibits is acceptable but must be accessible by Fannie Mae for the life of the loan. These exhibits must be unaltered and able to be authenticated using metadata and the geocode for the subject property. The letter and all documentation must be retained in the loan file.
Criteria for Use of Form 1004D and Completion Alternatives
Use of Form 1004D and completion alternatives varies depending on the type of valuation method and condition (completion, alteration, inspection, or repair) that must be verified.
Appraisals
(Any appraisal report form including Hybrid and Desktop)
Documentation Options
New or proposed construction - completion per plans and specifications
Borrower and builder
Borrower/builder attestation letter with supporting evidence
Existing construction - repairs or alterations
Borrower
Borrower attestation letter with supporting evidence
Existing construction - inspections requiring a professionally prepared report
Qualified professional
Professionally prepared inspection report
The lender must determine if repairs are required as a result of the inspection, verification per above requirements.
Documentation
Existing construction - repairs or alterations
Borrower
Borrower attestation letter with supporting evidence
Existing construction - inspection requiring a professionally prepared report
Qualified professional
Professionally prepared inspection report
The lender must determine if repairs are required as a result of the inspection, verification per above requirements.
Note: The alternative Form 1004D completion method and attestation letters are not permitted for verifying completion for HomeStyle Renovation transactions.
Verification of Completion: New or Proposed Construction
When the property securing the loan is new or proposed construction, the appraisal must be based on either plans and specifications, an existing model home, or other information sufficient to identify its quality and character to accurately report the interior features of the proposed improvements.
Verification of completion of construction is required (in accordance with the requirements above) before sale of the loan to Fannie Mae, unless the lender complies with the postponed improvements policies described below.
Verification of Completion: Existing Construction
Lenders must review the appraisal to ensure that the property does not have minor conditions or deferred maintenance items that affect the safety, soundness, or structural integrity of the subject property. See
, for information concerning property condition and quality of construction ratings.
The tables below provide requirements related to existing properties that have physical deficiencies, minor conditions, or deferred maintenance items that may or may not affect the safety, soundness, or structural integrity of the property.
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Requirements for Existing Construction When There are Minor Conditions or Deferred Maintenance Items that Do Not Affect the Safety, Soundness, or Structural Integrity of the Property
When the appraisal shows the existence of minor conditions or deferred maintenance that does not affect the safety, soundness, or structural integrity of the property, these items must be reflected in the appraiser's opinion of value and the appraisal report must be completed "as-is." Items meeting these criteria require the appraiser to report and comment on the effect these items may have on the subject property's value and marketability. The lender will then evaluate and determine if any additional course of action is required to comply with Fannie Mae's safety, soundness, and structural integrity requirements. Minor conditions and deferred maintenance items include, but are not limited to, worn floor finishes or carpet, minor plumbing leaks, holes in window screens, missing handrails, or cracked window glass and are typically due to normal wear and tear. The lender is not required to ensure that the borrower has had these items repaired prior to sale of the loan to Fannie Mae when the appraisal is completed "as-is."
If there are minor conditions or deferred maintenance items to be remedied or completed after closing, the lender may escrow for these items at its own discretion and still sell the loan to Fannie Mae prior to the release of the escrow as long as the lender can ensure that these items do not affect the safety, soundness, or structural integrity of the property.
Lenders must ensure the escrow account is a custodial account that satisfies Fannie Mae’s criteria for custodial accounts and depositories as outlines in Servicing Guide topic A4-1-02, Establishing Custodial Bank Accounts.
✓
Requirements for Existing Construction
When There are Incomplete Items or Conditions that Affect the Safety, Soundness, or Structural Integrity of the Property
When an appraisal is required and there are incomplete items, physical deficiencies, or items affecting the safety, soundness, or structural integrity of the improvements, the appraisal must be "subject to" completion of the specific repairs or alterations. This may include but is not limited to foundation settlement, water seepage, active roof leaks, worn roof shingles, inadequate electrical service or plumbing fixtures, etc.
Incomplete items, physical deficiencies, or items affecting safety, soundness, or structural integrity may also be identified through the property data collection process.
In all cases, the lender must verify completion before the loan is sold to Fannie Mae. See Form 1004D and Completion Alternatives above for the specific requirements.
Postponed Improvements
Fannie Mae allows the sale of a loan before construction or improvements are complete if certain requirements are met.
The table below describes requirements related to properties that are new or proposed construction that are not complete when the loan is sold to Fannie Mae.
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Requirements for New or Proposed Construction
Loans may be sold before postponed items are complete; however, the postponed improvements must be completed within 180 days of the note date. Acceptable postponed items include items that:
Completion must be confirmed using Form 1004D or an acceptable completion alternative as described above. All documentation must be retained in the loan file.
The cost of completing improvements must not represent more than 10% of the “as completed” appraised value of the property.
Lenders must establish a completion escrow for the postponed improvements, by withholding from the purchase proceeds funds equal to 120% of the estimated cost for completing the improvements. However, if the contractor or builder offers a guaranteed fixed-price contract for completion of the improvements, the funds in the completion escrow only need to equal the full amount of the contract price.
Lenders must ensure the escrow account is a custodial account that satisfies Fannie Mae’s criteria for custodial accounts and depositories as outlined in Servicing Guide A4-1-02, Establishing Custodial Bank Accounts.
Lenders and borrowers must execute an escrow agreement that states how the escrow account will be managed and how funds from the escrow account will be disbursed.
The completion escrow may not adversely affect the mortgage insurance or title insurance.
After a satisfactory Form 1004D or completion alternative is obtained, the lender must release the final draw from the escrow account, which should include any funds in excess of the amount needed to pay for completion of the postponed items.
Lenders must obtain a final title report, which must not show any outstanding mechanic’s liens, take any exceptions to the postponed improvements, or take any exceptions to the escrow agreement. If the final title report is issued before the completion of the improvements, lenders must obtain an endorsement to the title policy that ensures the priority of Fannie Mae’s lien.
Requirements for HomeStyle Refresh Improvements on Existing Construction
The table below provides the postponed improvement requirements for a HomeStyle Refresh loan.
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Requirements for HomeStyle Refresh Improvements on Existing Construction
Loans may be sold before the improvements are complete; however, the postponed improvements must be completed within 180 days of the note date. Acceptable postponed items include items that will not prevent the issuance of an occupancy permit.
A certification of completion must be obtained to verify the work was completed and must:
Lenders must establish a completion escrow for the total cost of the improvements. Lenders may include a contingency reserve of up to 20% of the total cost of improvements.
Lender must ensure the escrow account is a custodial account that satisfies Fannie Mae’s criteria for custodial accounts and depositories as outlined in Servicing Guide topic A4-1-02, Establishing Custodial Bank Accounts.
Lenders and borrowers must execute an escrow agreement that states how the escrow account will be managed and how funds from the escrow account will be disbursed.
The completion escrow may not adversely affect the mortgage insurance or title insurance.
Once a certificate of completion is obtained, the lender must release the final draw from the escrow account, which should include any funds in excess of the amount needed to pay for completion of the improvements. Any funds remaining in the escrow account after the work is completed must be applied to reduce the unpaid principal balance of the loan. The value of sweat equity and “Do It Yourself” improvements are not reimbursable.
Lenders must obtain a final title report, which must not show any outstanding mechanic’s liens, take any exceptions to the improvements, or take any exceptions to the escrow agreement. If the final title report is issued before the completion of the improvements, lenders must obtain an endorsement to the title policy that ensures the priority of Fannie Mae’s lien.
See
, for other requirements related to HomeStyle Refresh loans.
Uniform Appraisal Dataset (UAD) 3.6 Policy
Lenders using UAD 3.6 must follow the requirements in the
.
