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203k loan question

I have a question about a streamline 203k loan.  For example if a borrower is approved for 180k fha loan and they find a home that is 175k but needs 25k in repairs.  My question is would the borrower need to find a home that is 155k and use the remaining 25k as a 203k loan or would the lender approve the borrower for 200k although the initial approval was only 180k?  If the later is true how would that affect the dti ratio.  Using the example above if the borrower is at the maximum with 180k can he get approved for 200k with an 203k loan without an issue?

The information on the web about 203k loans are not that clear to me so any information that you have will be greatly appreciated. 
  • June 04 2014 - Canton
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Answers (4)

Profile picture for zuser20140604133320707
Thanks everyone for your answers they were very helpful.
  • June 07 2014
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Ultimately, it's the final loan amount and subsequent monthly payment that the borrower is approved at.  If the higher loan amount pushes about the DTI limit then they need to find a way to reduce the amount of rehab work (if possible) or drop the purchase price...or just find a different property.  Good luck. 

  • June 05 2014
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Whatever amount you are approved for, that would include the cost of the home plus the repairs. You will need to keep that amount in mind when you are out looking at homes. You need to sit down with a lender that is competant in originating 203K loans, so that you understand the process. Let me know if I can help you.
  • June 04 2014
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For a 203K, the DTI ratio is based on the total purchase price less the down payment, which includes the improvements. For example, if you purchased a home for 100K and wanted 25K for improvements, the actual purchase price is 125K. Your DTI is based on the loan amount less the down payment (FHA requires 3.5%) So yes, you could be looking at a lesser purchase price and factoring in the cost to improve it.
  • June 04 2014
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