Bob Northern & Company
12540 Patterson Ave
Richmond, VA 23238
Tel: 804-708-9463 • Fax: 804-708-9467
Financial Information
How much house can I afford?

Can I find out generally on my own?

How much house can I afford?
Federal National Mortgage Corporation otherwise known as Fanny Mae and The Federal Home Loan Bank Board, known as Freddie Mac, are two of the largest investors in real estate loans. They act as a central bank to the real estate industry. These two giants have certain "underwriting standards" that purchasers must meet in order to obtain a mortgage through most lenders.

Their standards include the ratio of loan to value (LTV) of the home being purchased, the buyer's credit worthiness, his debt structure, stability of employment and many more!

Their underwriting requirements are demanding, but generally their rates are the best available. More often than not, the lender that gave you your mortgage will sell your loan to Fannie Mae or Freddie Mac. These two giants in turn will sell your loan to investors such as trust funds, etc. who have money to invest. That is why often you will receive a letter from your lender advising you to make your payments to another bank or credit institution.

Never change the lender you are sending your payment to without the prior written notification of your present lender to avoid fraud!

There are different types of underwriting standards. Class A loans are generally Fannie Mae and Freddie Mac standards. Class "B" and "C" loans require a combination of a higher down payment, higher closing costs and/or a higher interest rate for borrowers whose income and/or credit do meet class "A" standards.

When you apply for your loan, you will hear your loan officer talk about your "Front End Ratio" and your "Rear End Ratio".

There is a maximum ratio allowed by lenders when they compare your gross monthly income to your house payment. This ratio is called your "Front End Ratio". For Fannie Mae and Freddie Mac, the ratio is about 28%.

Your "Rear End Ratio" is the ratio of your house payment plus all of your monthly installment and revolving debt as compared to your gross monthly income. For Fannie Mae, this ratio is about 36%.

Calculating my front end ratio
If my gross monthly income is $1,000 per month, what would be my maximum front-end payment?
$1,000.00 X 28% = $280.00 Maximum house payment
This amount includes principal, interest, taxes, insurance, PMI (Private Mortgage Insurance) and homeowner's association dues based on FNMA (Fannie Mae) guidelines.
Calculating my rear end ratio
What would be the maximum combined monthly house payment and monthly debts I could have in order to qualify for the above loan based on my $1,000.00 per month income?
$1,000.00 X 36% = $360.00 Combined total of house payment and installment loans based on FNMA guidelines
How much can I pay in monthly credit card payments & installment loans & still be qualified
Subtract $360.00 -280.00 = $80.00 Available for monthly installment loans/revolving credit payments
Most people qualify for a larger house payment than they are willing to make!
My ratios exceed 28% and 36%. What can I do?!
There are programs available depending on your income and credit that your ratios can go up to 52%! This is why you need a loan officer to advise you of the best financing program available for your particular needs.