I make $70,000 a year. How much house can I afford?

Home buying with a $70K salary

If you make $70K a year, you can likely afford a house payment between $1,500 and $2,000 a month, depending on your personal finances. Assuming a 4% mortgage rate and a $30,000 down payment, that might buy you a home between $267,000 and $345,000.*

This is good to know, but there’s a lot more to home affordability than your salary.

Depending on factors like your credit score and down payment, you might be able to afford far more house than the average borrower. Here’s how.

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*Home price example assumes a 30-year fixed interest rate of 4.0% on a home purchase in Florida with a 0.97% annual property tax rate and a $600 annual homeowners insurance premium. Your own interest rate and budget will be different. All examples generated using The Mortgage Reports mortgage calculator

I make $70K a year. What’s my max house payment?

Personal finance experts recommend spending between 25% and 33% of your gross monthly income on housing.

Someone who earns $70,000 a year will make about $5,800 a month before taxes.

• One-fourth rule: Spending 25% of $5,800 on housing would mean a total monthly payment of about $1,450
• One-third rule: Spending 33% of that $5,800 on housing would put the payment right under $2,000 a month
• Even more: If you could afford to spend 40% of your income on housing expenses, you’d have a $2,300 monthly mortgage payment

Of course, your monthly payment is only half the equation. Next, we’ll estimate how much house you can afford based on your monthly budget.

How much house can I afford on $70K a year?

The house you can afford on $70K per year – or any salary, for that matter – depends on quite a few factors.

Aside from your gross monthly income, lenders look at your credit score, down payment, debt–to–income ratio, and your likely mortgage rate, among other things.

Depending on how all these numbers shake out, your home buying budget with a $70,000 salary could look very different.

Take a look at a few examples to see what we mean.*

Down payment and your home buying budget

Salary	$70,000/year	$70,000/year
Down Payment	$15,000	$40,000
Current Monthly Debts	$250	$250
Mortgage Rate	3.0%	3.0%
Home Buying Budget	$349,200	$409,200

Current debts and your home buying budget

Salary	$70,000/year	$70,000/year
Down Payment	$40,000	$40,000
Current Monthly Debts	$150	$500
Mortgage Rate	3.0%	3.0%
Home Buying Budget	$432,000	$352,400

Mortgage interest rate and your home buying budget

Salary	$70,000/year	$70,000/year
Down Payment	$40,000	$40,000
Current Monthly Debts	$250	$250
Mortgage Rate	2.75%	4.0%
Home Buying Budget	$420,800	$367,200

*All examples assume a credit score of 720, a 0.1% annual property tax rate, and a $600 per year homeowners insurance premium. All calculations were made using The Mortgage Reports home affordability calculator

How to determine how much house you can afford

Your mortgage lender ultimately determines your purchasing power.

However, free online mortgage calculators are excellent tools for getting a ballpark estimate of your housing expenses.

Before using a mortgage calculator, make sure you research current mortgage rates to get a more accurate estimate.

You can go a step further by checking your credit, and then searching for average mortgage rates based on credit score.

Once you input your annual income and estimated mortgage rate, the calculator determines the maximum amount of money you’re able to spend on a house and the expected monthly payment.

Consider your total monthly payment

Several different costs are included in a mortgage payment.

It’s important to plan for all your monthly expenses so you get an accurate estimate of the purchase price you can afford based on your monthly budget.

The four main components of a mortgage payment are principal, interest, taxes, and insurance:

• Principal and interest payment: Principal refers to the loan amount. Your interest payment is the cost of borrowing funds. Each month, a certain percentage of your housing payment goes toward repaying the principal while another part goes toward interest
• Property taxes: In most states, you’ll pay annual property taxes based on your home value. Lenders add a portion of your annual tax bill to each monthly mortgage payment. That way the money is available, in escrow, when the annual tax bill comes due
• Insurance: Homeowners insurance is required when you buy a house. Home insurance protects the property from damages like theft, fire, or natural disaster. You might also have to pay for private mortgage insurance (PMI) if you purchase a home with less than a 20% down. This insurance protects the lender if you default on the loan
• Homeowner’s association (HOA) dues: If you purchase in a community with a homeowner’s association, you’ll also pay monthly HOA fees. These fees might cover the cost of landscaping, community centers, maintenance, trash removal, etc.

How your payment affects your price range

Some mortgage calculators don’t factor in all the costs included in your monthly payment. This can give you an unrealistic estimate of how much house you’re able to afford based on your household income.

The reason? You have a set monthly budget, and when your other homeownership costs are higher, there’s less of that budget leftover for your house itself. In turn, this reduces how much house you can afford.

To get a more accurate estimate of your home buying budget, use a mortgage calculator with taxes, insurance, and PMI included.

Also remember to factor in monthly living expenses like cell phone bills, internet bills and utilities. Lenders don’t look at these when determining your eligibility. But they’ll impact your monthly budget and how affordable your mortgage is.

Or, talk to a lender. They can give you a free mortgage loan estimate with the most accurate number based on your finances and current mortgage rates.

Aside from salary, what determines how much house you can afford?

Even though salary is a huge factor in determining home affordability, other things also impact your price range.

The reality is, two applicants who both earn $70,000 a year might qualify for two very different mortgage amounts based on factors such as:

• Down payment
• Credit score
• Interest rate
• Debt–to–income ratio (DTI)
• Employment history
• Loan term

We showed you the numbers above. Here’s a little more information on what each factor means and why it’s important to a mortgage lender.

Down payment

It’s possible to buy with no money down when you use USDA or VA loans. But most home loan programs require a minimum down payment between 3% and 5%.

Making a bigger down payment reduces the amount you have to borrow to buy the new home, lowering your monthly payment even though you’re getting the same home.

If you can put down at least 20% on a conventional loan, you can also avoid PMI, which will make your monthly payments even more affordable.

When you’re budgeting for a down payment, remember to include closing costs in your calculations, too.

Closing costs are typically between 2% and 5% of the loan amount, which can add a few thousand dollars to your upfront, out–of–pocket costs.

Credit score and interest rate

Your credit score also plays a role in how much house you can afford. The higher your credit score, the lower your mortgage rate.

Interest not only determines your total loan cost, but also affects how much you pay on a monthly basis.

Mortgage rates can fluctuate from week to week or even day to day based on market conditions. Rates also vary by lender, which is why it’s important to shop around for your mortgage loan and find the best deal.

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Debt–to–income ratio

When calculating affordability, your lender also considers your current debt load.

Your debt–to–income ratio is the percentage of your monthly income that you spend on monthly debt payments.

A borrower who earns $70K a year but has student loan payments, a high car payment, and high credit card payments might qualify for a much smaller loan than a borrower with the same salary and zero consumer debt.

Ideally, your total debts shouldn’t exceed 36% to 43% of your gross annual income (including the future mortgage payment). But the maximum threshold varies by loan program.

Some FHA loan lenders allow a DTI up to 50% or even higher if you have ‘compensating factors’ that make up for a high DTI.

Even though you can get approved with a higher DTI, your high debt payments can reduce your maximum loan size which limits your home purchasing power.

Employment history

Mortgage lenders care about the amount of your income, but they also evaluate the stability of your income.

In most cases, you’ll need to show a history of two consecutive years of employment to qualify for a mortgage.

That said, a two–year job history isn’t always required. This can help first–time home buyers who may be just starting out in their careers or self–employed buyers who don’t have W2 forms and official pay stubs.

The most important thing in a lender’s eyes is income stability. The more predictable your income, the better.

So if most of your income comes from commissions – which aren’t guaranteed – the lender will review your commission income over the previous two years.

It’s worth noting that your income verification also needs to be “on paper” – meaning if a portion of your income is in the form of cash tips that do not appear on pay stubs or W2s, then you may not be able to use gratuities as income.

Your loan officer will use your household’s average pre–tax income over this two–year period for qualifying purposes. If your income is considerably less in any one of those years, you might only qualify for a small mortgage.

Loan term

A longer loan term (for instance, a 30–year vs. 15–year mortgage) will have a lower monthly payment for the same loan size. Payments cost less with longer terms because lenders have more time to collect the debt.

Stretching your housing debt across a longer loan term means you can buy a more expensive home for the same monthly payment.

For example, a $2,000–a–month house payment might buy a $350,000 home over 30 years. The same $2,000 payment might buy only a $235,000 home with a 15–year loan.

That’s why most buyers choose 30–year loan terms, even though 30–year mortgages charge tens of thousands more in interest over the life of the loan compared to a 15–year loan.

Tips to afford more house on a $70K salary

The ability to get more house for your money while earning $70,000 a year is possible, but you’ll need to plan ahead. Here’s what you can do:

1. Save a bigger down payment

Remember, a bigger down payment gives you more buying power. So rather than putting down the typical 3% to 5%, maybe save a minimum of 10% to 15%. Paying more down upfront also helps you negotiate a lower interest rate.

2. Try to boost your credit score

You don’t need excellent credit to get a mortgage, but a high score saves money in the long run since you’ll qualify for a better rate.

Always check your credit history and score before applying for a mortgage. If necessary, take steps to boost your score. Pay your bills on time and pay down any financial obligations like credit card debt or auto loans.

3. Reduce debt payments

Reducing your debt not only increases your credit score, but it also boosts your purchasing power. That’s because your DTI ratio is lower.

Come up with a plan to pay off student loans, credit cards, and other debts you have before buying a home.

Also, if you’re thinking about buying a house in the near future, don’t take on a new car payment if possible. This added debt can lower your purchasing power quite a lot.

4. Don’t be afraid of PMI

Even though a 20% down payment can help you get a lower mortgage rate and increase affordability, this isn’t the right move for everyone.

As a general rule, you should never drain your personal savings account for a home purchase.

If a 20% down payment means depleting your cash reserves, it’s wiser to put down less money. This way, you retain cash for emergencies.

Understandably, some homebuyers aim for 20% down to avoid private mortgage insurance (PMI).

Yes, PMI is an added expense. But it’s not always a permanent expense.

As you pay down your mortgage balance and your home increases in value, you’ll eventually have 20% equity. At that point, you can cancel your PMI. Or, if you have an FHA loan, you can refinance into a conventional loan to remove this cost.

Paying private mortgage insurance also helps you buy a new house sooner.

The mortgage and housing market is unpredictable. If you delay buying until you have a 20% down payment, you could potentially miss out on low rates and more affordable home prices.

Find out how much house you can afford

So, how much house can you afford while earning $70K a year?

The bottom line is that factors other than salary determine your price range.

Yes, income is a big component of the equation. But you must consider other monthly costs, your down payment, and of course, your interest rate.

Before heading out to open houses with your real estate agent or Realtor, get your finances in order and shop around for the lowest rate. You can maximize your home buying power on any salary.