How Much House Can I Afford on $70,000 Salary?

If you are interested in buying a house but worried about affordability, know that you are not alone. According to a survey of 2,000 Americans, 87% of people are worried about the cost of housing while 55% say they cannot afford to buy homes at their current prices.

The rising cost of housing and increasing interest rates are pricing some people out of homeownership while making it harder for buyers to calculate what they can afford. 

For those who are ready to buy a house, these calculations can be challenging, but it’s possible to figure out how much house you can afford. There are multiple financial aspects and factors that contribute to your final number. These calculations will prevent you from moving into a property that is too expensive, leaving you “house-rich but cash-poor.” 

Use this guide to calculate how much house you can afford to buy on a $70,000 annual salary and how you can potentially increase your budget.

Key Factors in Determining Home Affordability

Every home-buying experience is unique, which means there is no way to give a set number for what someone can afford when earning $70,000 per year.

However, these steps can help you calculate your monthly payment so you can see what kinds of properties fall within your price range.

Down Payment

The first thing to know is that your down payment will play a significant role in home affordability. The larger the down payment you have, the more house you can typically afford.

In 2022, the average down payment for first-time home buyers was six percent of the home’s value. If you apply for a mortgage through the Federal Housing Administration (FHA), you might only need a three or four-percent down payment.

This is good news for buyers who don’t have a lot of savings, but it doesn’t mean buying a house is immediately affordable. The median home price in the United States as of Q2 2023 was $402,600. This means a four percent down payment is $16,000 while a six percent down payment is still $24,000. 

Additionally, smaller down payments come with larger costs. You will need to pay private mortgage insurance (PMI) on any loan that covers more than 80% of your home’s value. Even if you can afford the standard monthly payment by your lender, the PMI might be a surprise. 

This information isn’t meant to scare you away from buying a house. You can still become a homeowner with a small down payment, but your costs will be higher. Look at the median home prices in your area and the cash you have on hand to estimate the overall size of your loan. 

Mortgage Rates and Terms

The mortgage rate you choose will also determine your monthly payment. The most popular mortgage type is the 30-year fixed-rate mortgage, which 90% of buyers choose. This takes your loan and divides it across 30 years with flat payments 12 times per year. However, this isn’t the only factor in your mortgage payment. You also need to add the interest charged by your lender and other fees that add to the cost of your loan. 

Turn to online mortgage calculators to see how different interest rates affect your monthly debt payments. You can input your home cost, down payment, and estimated interest rate to see what your monthly mortgage payment will look like.  

Even small interest rate changes can have significant impacts on your payments. Rocket Mortgage estimates that a one percent change in interest rates can cost homeowners more than $1,000 per year in higher mortgage payments. Securing lower interest rates often means you can afford more expensive houses. 

Unfortunately, there are macroeconomic trends that afford your interest bill. Interest rates shift over time along with the economy. In August 2021, interest rates were down to 2.77%, by August 2023 they were up to 7.09%.  

You can seek out savings on interest rates by shopping around for loans, having a good credit score, and having a larger down payment – which lowers the risk of the loan to lenders. Even small drops can make your monthly mortgage payment more affordable.

Additional Homeownership Costs

You are in a good place if you can calculate your loan amount and estimated interest rate. This will give you an idea of your monthly mortgage payment. However, there are additional expenses that go into owning a home. Here are a few additional non-optional housing expenses to consider:

• Property taxes: These vary by state and are often based on the size of your house. Currently, Hawaii and Alabama have the lowest property tax rates, while Illinois and New Jersey have the highest. You can expect to pay between one and two percent of your home’s value in taxes annually. 
• Home insurance: This also varies by state, home size, and potential risks to the property (like flooding if you live on a river). Oklahoma has the highest rate of homeowner’s insurance at $5,317 per year on average while Hawaii has the lowest at $582 on average.   
• Maintenance: Experts recommend setting aside at least one percent of your home’s value for maintenance each year. On a $400,000 house, this is $4,000 or $333 per month. There are times when you won’t need this money and times when there is a crisis (like a broken HVAC unit) where you spend much more.  
• Homeowner’s Association fees: If you live in a neighborhood with an HOA, you will need to pay monthly dues. However, you can tell your real estate agent you do not want to live in an HOA neighborhood to skip this expense. 

Many lenders consider these costs when they are calculating your debt-to-income ratio. They can even build your taxes and insurance into your mortgage payment. However, you must be aware of these bills before you start looking at houses.

Calculating Home Affordability on $70,000 a Year

Once you have a clear picture of your homeownership expenses, you can get an answer to, “How much house can I afford?” Use these steps to get an idea of what kind of mortgage you can apply for. You can also use online tools that ask similar questions and will calculate your budget for you.  

• Start with your gross monthly income. This is your take-home pay after taxes. People earning $70,000 per year often have a take-home pay of $4,400 per month. 
• Estimate your maximum debt-to-income ratio. Most lenders want a DTI of 36%, while some will approve loans with a debt-to-income ratio of 45%. Divide your debt by your income to get this ratio. If you earn $4,400 per month, a high DTI would fall between $1,500 and $2,000.    
• Add up your existing monthly debt payments. Calculate your monthly costs for student loans, car payments, child support payments, and personal loans. These debts contribute to your DTI. 
• Subtract your current monthly debts from your DTI maximum. This gives you an estimated monthly mortgage payment. If you have a maximum DTI of $2,000 and pay $250 on your car and $400 for student loans monthly, then your housing budget would fall around $1,350. 

This is just an example and everyone’s housing budget is different. To get a clear picture of your specific finances, talk to a loan officer about getting pre-qualified to buy a house.

They can run these calculations for you starting with your gross monthly income and provide a maximum loan amount. This will tell you clearly how much you can afford.   

Tips for Maximizing Home Buying Budget

If you are still worried about making monthly payments while earning $70,000 a year, know that there are ways to lower your costs.

Here are a few ways to lower your total monthly debt payments while potentially increasing house much house you can afford.

Improving Your Credit Score

Your credit score is a significant indicator of your lending reliability. A high credit score shows that you regularly make your debt payments and are unlikely to default on the loan. Conversely, a low credit score shows that you have experienced some financial struggles or are unreliable. Lenders often give favorable interest rates to people with high credit scores of at least 700. You can request a free credit report online or see if your lender will pull one for you. 

There are ways to improve your credit score if yours is lower than you would like. Here are a few steps you can take:

• Build your credit history. Go a year without missing any payments, even if you are only able to pay the minimum due on your credit cards. And look for ways to improve your credit.
• Catch up on past-due debt. Be strategic with how you pay off debt. Cover any outstanding accounts and then close them. 
• Consider debt consolidation. You might benefit from paying off lots of accounts at once with a loan and then making one monthly payment on your debt. 
• Do not open new accounts. Focus on growing the health of your existing accounts instead of opening new ones. 
• Give it time. Credit doesn’t grow overnight. It will take time for you to build a higher credit score. 

If your credit score prevents you from getting a good interest rate, consider improving it over a year before starting the conventional loan application process.

Exploring Different Mortgage Options

Multiple different types of loans will affect your mortgage payments. You might decide that a conventional loan with a fixed rate isn’t ideal if you make $70,000 a year and want to buy a house in the current market. 

When interest rates are low, buyers want fixed-rate mortgages. No matter what happens with the economy, their payments won’t change. However, when interest rates increase, buyers start to look into adjustable rate mortgages (ARMs). These mortgages change as rates fluctuate. For a few months, your mortgage payments might be higher as rates rise and then they will fall with economic trends. 

If you believe that interest rates will decrease in the future but want a house now, consider an ARM. This mortgage is more of a risk but you could potentially save money in the long run.

Saving for a Larger Down Payment

If you are unable to increase your gross monthly income (which would reduce your debt-to-income ratio) but still want to buy a house, consider waiting and saving up a larger down payment. The larger the down payment, the lower your monthly payments. This is because the size of your loan will be smaller and the interest built onto it will be less. 

Try to save up at least 20 percent of your home’s value for a down payment, especially if you are applying for FHA loans or VA loans. This is more than the minimum needed to get a loan but you won’t have to pay private mortgage insurance.  

You might have to live uncomfortably in the short run if you want to save up in the long run. Some people move back in with their parents to save on rent or live with roommates which lowers their monthly expenses so they can have a large down payment.

Find a Realtor to Help You Find the Right Home

Once you have a clear answer to, “How much house can I afford?” you can start to meet with real estate agents who will show you local properties. They can limit your showings to houses within your price range so you don’t accidentally fall in love with a home you can’t buy. An experienced agent will respect the needs of their clients and work within their budgets. 

To find a quality agent, turn to the professionals at FastExpert. You can read different profiles and find Realtors who enjoy working with first-time homebuyers. You can also interview potential agents to make sure they are a good fit. 

It might take a little work, but you can improve your debt-to-income ratio and secure a down payment that helps you get a favorable loan. It is possible to buy a house while earning $70,000 a year.