If I Make $70,000 a Year, How Much House Can I Afford?

“If I make $70,000 a year, how much house can I afford?”

When you qualify for a mortgage, the first thing your loan officer looks at is your current income. Your income plays the biggest role in determining how much you can spend on a house. So it’s totally reasonable to ask a question like this. Most people do. 

However, the answer isn’t quite as straightforward as it might seem. 

Figuring out what house you can afford on 70K a year goes a bit deeper than just calculating the monthly payment to see if it fits into your budget. Your down payment, current debts, where you live, and several other factors all play into your home purchasing budget.

When you take these other factors into account, you get a much more specific number, and you may even discover you can afford more house than you expected.

In this article, we walk you through all the possible scenarios to help you understand once and for all how much house you can afford on a 70,000 salary.

Disclaimer: This article is for informational purposes only and should not be considered as legal or financial advice. Please consult an attorney, mortgage lender, or CPA for guidance on your specific situation.

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

In theory, you can probably afford a house that costs between $190,500 and $311,500 with a 70K salary. That’s a pretty broad range because how much house you can afford on $70K also depends on your down payment amount, mortgage interest rate, other debts, and where you live.

Clearly, you can’t spend your entire monthly income on your mortgage. Most personal finance experts recommend keeping your mortgage payment between 25% and 33% of your monthly income and strongly advise against paying any more than 40% of your monthly income in housing payments.

Exactly how much of your monthly income you can dedicate to your mortgage depends on your other expenses. However, these are the recommended monthly payment limits, based on percentages of a $70,000 yearly salary:

• 25% of your monthly income: About $1,450 total monthly mortgage payment
• 33% of your monthly income: About $2,000 total monthly mortgage payment
• 40% of your monthly income: About $2,300 total monthly mortgage payment
• 50% of your monthly income: About $2,916 total monthly mortgage payment

Keep in mind that these are total monthly mortgage costs. That means that the payment includes taxes, homeowner’s insurance, homeowners association fees, and any other costs. Make sure you account for those expenses during your home shopping.

We’ll cover debts in the next section. But, assuming you have no other debts, these are the rough max home prices you can afford:

Just to be clear, these are rough numbers.

These budgets are based on a standard 30-year mortgage, but there are other mortgage products available. Interest rates change frequently, sometimes daily, and tax rates vary based on state, county, and city. Your numbers may vary.

Understanding your debt-to-income ratio

Debt is a big part of figuring out what house you can afford on 70K a year. Obviously, it’s important for your own budgeting purposes, but lenders also need to know how much debt you have so they can calculate your debt-to-income ratio.

Your debt-to-income ratio is exactly what it sounds like: it is the standard way lenders quantify how much debt you have compared to your total monthly income. Lenders use this single number to quickly assess how much they’re willing to loan you, or if they’re willing to loan you money at all.

How to calculate your debt-to-income ratio

Mortgage lenders calculate your debt-to-income ratio by dividing your total monthly debt payments by your gross monthly income. 

Total monthly debts / gross monthly income = debt-to-income ratio

A $70,000 yearly salary delivers about $5,833 gross monthly income. 

Based on this monthly income, here’s what your debt-to-income ratio would look like with the following debt amounts: 

• $650 debts / $5,833 gross monthly income = 0.111 debt-to-income ratio
• $500 debts / $5,833 gross monthly income = 0.086 debt-to-income ratio
• $250 debts / $5,833 gross monthly income = 0.043 debt-to-income ratio

Without turning this into a math lesson, a lower debt-to-income ratio is better. Your debt to income ratio basically just shows what percentage of your income goes to debt payments.

If your debt-to-income ratio is 1.0, that means your total monthly debt payments are equal to your monthly income. A debt-to-income ratio of 0 means you have no monthly debt payments.

The 28/36 rule

Your debt-to-income ratio is a metric for lenders. Most everyday people don’t calculate their debt-to-income ratio in their personal budgeting and financial planning. We usually use absolute numbers, rather than ratios.

This is where the 28/36 rule can be useful, especially as you think about how much house you can afford. 

Many financial experts recommend capping your mortgage payments at 28% of your gross monthly income and capping your total debt payments at 36% of your gross monthly income.

This means that if you have other significant debts to pay, you probably don’t want to max your mortgage payment out at 33% or 40% of your monthly income. That would make your finances a bit tight.

To give you some hard numbers to work with:

• 28% of your monthly income on a $70,000 salary is about $1,624 
• 36% of your monthly income on a $70,000 salary is about $2,088

Following the 28/36 rule, your housing expenses would be $1,624 and your other debt payments would be $464, for total monthly debt payments of $2,088.

3 examples of home affordability based on debt-to-income ratio

So how does all this debt-to-income ratio business work out in real-world budgeting? What if your other debt payments are more than $464? What if they are less? Here are a few examples to make things clear.

Budgeting to buy a house with student loans

Say you have a student loan payment of $567 (the average student loan payment for a graduate with a master’s degree). $567 is about 10% of a $5,800 gross monthly income. So, you’d have to reduce your monthly mortgage expenses to 26% of your monthly income, for a 26/36 split. 

In absolute numbers, your maximum monthly mortgage payment would be $1,521.

Budgeting to buy a house with less debt

On the other hand, you might have less in debt payments each month. For example, an average monthly student loan payment for someone with a bachelor’s degree is $267.

In this case, you’d still cap your total debt payments at 36% of your monthly income, but you’d be able to allocate more funds to your mortgage payment: 31% of your income would go to your mortgage payment and 5% would cover your other debts. 

In absolute numbers, that’s an $1,821 mortgage payment.

Budgeting to buy a house with other common debts

What about other debts? The average monthly payment for a new car is $716. In this case, your maximum mortgage payment would be $1,372, or 24% of your monthly income. 

How to factor in your down payment

When you work out how much house you can afford with a 70K salary, your down payment is a big part of the equation. The good news is that down payments are relatively easy to understand.

Your down payment reduces how much you need to borrow to buy a house. For example, if you buy a house that costs $250,000 and you make a down payment of $15,000, you’ll have to borrow $235,000. Your mortgage payment will be calculated based on paying back that $235,000.

Additionally, most lenders will give you a lower interest rate if you can make a larger down payment. A larger down payment reduces risk for the lender, so they’re willing to charge you less for the loan.

Traditionally, the recommended down payment is 20% of the cost of the house. However, this is not a requirement, and many people purchase a home with less money down. Just understand that a lower down payment will increase your monthly mortgage payments.

You also don’t necessarily have to come up with all of the cash for your down payment. 

There are a number of down payment assistance programs to help first-time homebuyers. This includes first-time homebuyer grants, tax credits, and other programs to increase your purchasing power. 

Learn more about down payment assistance and how it can help you get into your first home sooner.

How down payment assistance affects the amount of house you can afford

Down payment assistance programs can help you fit a more expensive house into your budget by reducing how much you borrow, and in turn reducing your monthly payments.

For example, if you can afford a monthly payment of $1,450 each month, your home buying budget would be about $165,600 with zero down payment. 

However, if you get a first-time homebuyer grant of $15,000, you can afford a $190,500 house, assuming the same interest rate and other costs.

As you can see, a $15,000 down payment increases your home buying power by quite a bit. Making the biggest down payment possible is a very efficient way to increase how much house you can afford.

Stairs can help you find the best down payment assistance programs available in your area. Learn more. 

How much house can I afford on 70k in my part of the country?

The cost of living varies from state to state and even from city to city, as do home prices. 

Although the cost of living may vary from state to state, the 28/36 method of budgeting for a home purchase still applies. The price of homes in your area is the biggest limiting factor for buying a home.

If you calculate what monthly payment you can afford, you’ll be able to afford houses in about the same price range all over the country. 

To find out how home prices in your part of the country stack up, take a look at our recent picks for the cheapest states to buy a house in 2023. 

Mortgage rates, credit score and more: What else affects home affordability?

Home price and down payment amount aren’t the only things that impact your monthly mortgage payment. There are quite a few factors, and it can be tricky to take all of these into account when you calculate your monthly payment.

A real estate professional or a lender can help you accurately calculate your monthly payment, including all of these ancillary costs. But here’s an overview of what might affect home affordability for you. 

Interest rates

Interest rates aren’t exactly an ancillary cost. However, they do change frequently. You may also get a lower interest rate if you make a larger down payment. As we showed earlier, relatively small changes in interest rates can make a big difference in how much you pay each month.

Therefore, it’s important to understand what interest rate you’ll get before you make your home purchase.

Credit score

The simplest explanation of how your credit score affects home affordability is that a higher credit score qualifies you for lower interest rates. A lower credit score indicates higher risk to lenders. They hedge their bets on this additional risk by charging you a higher interest rate.

There are ways to check your credit score for free, and your mortgage lender will also pull your credit score as part of your loan application. 

However, if you’re serious about buying a house and want to have as much information as possible before you head to the bank, it’s often worth it to pay for a credit report from Experian or MyFICO. These aren’t free, but they give you the most accurate credit score.

Property taxes

In most cases, your property taxes get wrapped up into your monthly mortgage payment. Certain states do have higher property taxes than others, but again, the average home price in your area makes a much greater difference than the property taxes.

New Jersey, the state with the highest property taxes in the nation, has a 2.21% property tax rate and an average home value of $470,981. Hawaii, the state with the lowest property taxes in the nation at 0.27%, has an average home value of $722,500.

The difference in taxes is a little less than 2%, but the average home price in Hawaii is 35% higher.

Ultimately, property taxes will impact your monthly mortgage payment. But you can’t dodge them, and working to find a house at the best price possible is a much better time investment than worrying about property taxes.

Homeowner’s insurance

Homeowner’s insurance is a smart thing to have, and most mortgage lenders require it. Insurance costs vary from state to state. The costs are largely dependent on how likely it is that your home gets damaged or destroyed by natural disasters or other environmental events.

Homeowner’s insurance is kind of like property taxes in that it will impact your monthly mortgage payment, but it’s required in most cases, so you can’t do much to affect it.

Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) is one of the reasons professionals recommend putting 20% down when you buy a house. If you make a 20% down payment, you don’t have to pay for PMI.

However, even if you do have to pay for PMI, you can usually request to stop paying for it once you accrue 20% equity in your home, and most PMI automatically cancels once your home equity reaches 22%.

Homeowners Association (HOA) Fees

Homeowners Association (HOA) fees can be pretty hefty. HOAs also often have rules about what you can and can’t do with your house, at least on the outside. If the home you want to buy comes with HOA fees, make sure to factor these into your monthly mortgage payment calculations.

How to afford more house with down payment assistance

It’s quite common for people to have enough money in their monthly budget for a house, but not a big lump of money in their bank account for a down payment. If you make $70,000 a year, you can afford more house with the help of down payment assistance. 

It can be tricky to track down all of the available down payment assistance programs and determine which program is right for you. 

Until now.

With Stairs Financial, you can easily find out exactly which down payment assistance programs are available to you, so you can make a more informed decision.

Stairs connects you to qualified lenders who work with all the down payment assistance programs you might qualify for, then lets you compare your options side-by-side.

Learn more.