Buying a house with a $70K salary? Here’s what you can afford

If you’re a first-time homebuyer making $70,000 a year, you might be asking yourself how much house you can afford with that salary. 

The answer depends on several factors, including the home purchase price, loan type, repayment term, interest rate, and annual property taxes. It also comes down to how much you put down, your credit score, and your insurance rate. Here’s what you should know about your options as you begin your homebuying journey.

Understanding debt-to-income ratio (DTI)

One of the first steps to getting a mortgage is understanding your debt-to-income ratio (DTI). Lenders will review your DTI to determine whether to approve you for a loan and for how much.

Your DTI is the total percentage of your gross monthly income — your income before taxes — that goes toward your monthly debts. Here’s an example:

• If you make $70,000 a year, your monthly income is about $5,833.
• Say you spend $2,500 for all debt payments — including credit cards, car loan payments, and other debts.
• Divide your monthly debts by your monthly income ($2,500/$5,833) to get a DTI of 43%.

Generally, you’ll want to keep your DTI to no more than 36% of your monthly income. For a $70,000 annual income, that’s about $2,100 a month that can go toward debt payments.

Each lender and loan type has its own DTI limits that you’ll need to meet to get a mortgage. If you have a higher down payment and good credit, you may be able to get a loan with a higher DTI — up to 50% in some cases, according to Fannie Mae.

Calculating your down payment

Your down payment is another critical factor in determining whether you’re approved for a mortgage and under what terms. The more you can pay upfront, the less you’ll need to borrow from a lender. A larger down payment will take a chunk out of your savings now, but it can save you money in interest charges over the life of your loan.

Down payment requirements vary by lender and home loan type. For example, you could get an FHA loan with a down payment as low as 3.5% of the home purchase price, depending on your credit score. Most VA and USDA loans don’t require a minimum down payment.

For a conventional mortgage, lenders often require a down payment of 3% or more. If you want to avoid private mortgage insurance (PMI), which is an extra monthly cost, you’ll need to put 20% down.

Given that the median sales price of homes sold in April was $420,800, take a look at what a possible down payment would be on such a home:

• 3% down payment = $12,624
• 5% down payment = $21,040
• 10% down payment = $42,080
• 20% down payment = $84,160

Saving up for a down payment on a $70,000 salary can be tricky, especially if you’re already paying other bills, but here are some ways to do it:

• Use a high-yield savings account (HYSA): Instead of using a traditional savings account to save money, switch to a HYSA. These accounts can yield up to 6.08% interest, which can help your money grow faster.
• Make a budget: A budget will tell you how much money you’re spending and on what. Once you have a budget, calculate how much money you can realistically set aside for your future home.
• Lower your expenses: Find ways to reduce your spending — such as by cutting down on monthly subscriptions or dining out — and put the extra money toward your existing debts or savings.
• Set small and big goals: It can take years to save as much as you need for a down payment, so set some small financial goals to keep you motivated along the way.
• Increase your income: Ask for more hours at work, take on a weekend side gig, or seek a promotion to boost your income and reach your down payment savings goals sooner.
• Look into down payment assistance programs: Down payment assistance programs exist to help people — particularly first-time buyers — afford a home. This can be in the form of a grant or a special loan program. Research your state or region to determine which programs are available. You can also find a list of homebuying resources by state on the Department of Housing and Urban Development’s website. 
• Go with a cheaper property: A less expensive home will generally require a smaller down payment. A smaller home will likely have lower monthly utility bills, lower property taxes, and less maintenance and upkeep, too.

Types of home loans for $70K income earners

Understanding the different home loans available to you is key to making sure you choose the right one for your financial situation and long-term goals. Every home loan type comes with its own eligibility criteria, repayment terms, and interest rates.

Here are the most common options for those who earn $70,000 a year and their typical requirements:

• Conventional home loan: This option isn’t government-backed so it may have stricter credit score, down payment, and income requirements than other options. You’ll typically need a credit score of 620 or higher to qualify. In most counties, the loan amount is capped at $766,550 — or $1,149,825 in more expensive areas. These loans require PMI unless you put at least 20% down.
• FHA loan: A type of government-backed loan, this option is generally easier to qualify for than conventional loans. For borrowers with a lower credit score and down payment, it can also be a better option than conventional loans. You’ll need a minimum credit score of 580 to qualify for full financing. If your credit score is between 500 and 579, you'll need a down payment of 10%.
• USDA loan: Geared toward low- or moderate-income buyers, USDA loans are only available in designated rural locations. There’s no down payment requirement, but they do come with a maximum income limit based on your region and household size. You can find more about your eligibility on the USDA website.
• VA loan: Backed by the Department of Veterans Affairs, this loan is available to qualifying military personnel and veterans. There’s no down payment requirement and no PMI, but there is a funding fee that ranges from 1.5% to 3.3% of your loan’s value.

All of these loan options — excluding USDA loans — come with either a fixed or variable interest rate. A fixed-rate loan will stay the same for the duration of your repayment term, meaning you’ll always know your monthly payment amount. Variable-rate loans can fluctuate with current market conditions, meaning your payment could become more or less affordable.

The repayment term also plays an important role in overall home affordability. Common terms range from 10 to 30 years. A longer repayment period generally means lower monthly payments but more interest charges over time. A shorter-term loan may have higher monthly payments but cost less overall.

Use an online mortgage affordability calculator to run some numbers and determine which loan option best suits your needs. If you think you’re ready for a loan, you can also get pre-approved. This will give you a better idea of what you might qualify for and how much your monthly payments will be.

Calculating house affordability

Determining how much house you can afford depends on your financial situation. That said, you can always use the 28/36 rule to estimate your mortgage budget. Here’s how it breaks down:

• You shouldn’t spend more than 28% of your gross income on housing costs, including your mortgage payment, insurance, and taxes. This is your “front-end” DTI.
• You should spend a maximum of 36% of your gross income on all debt payments, including your housing costs. This is your “back-end” DTI.

Based on a $70,000 annual salary, your maximum housing expenses would be $1,633 (28% of $5,833). Your maximum monthly debt payment would be $2,100.

Say you want to make a 20% down payment and you’re shopping for a 30-year fixed-rate mortgage with an estimated 7% interest rate. A $250,000 home would have a monthly payment of around $1,442, while a $275,000 home would have a monthly payment of $1,575.

Cost of living considerations

Local living expenses can greatly influence how much house you can afford. This includes housing (rent or mortgage payments), utilities, transportation, health care, groceries, and entertainment costs.

Some cities and states come with higher costs than others. According to the Missouri Economic Research and Information Center, the most expensive areas in the country include Hawaii, the District of Columbia, Massachusetts, and California. Midwestern and Southern states generally have the lowest overall cost of living.

If you want to buy property in a more expensive area, you’ll need to factor in the higher cost of living there. If everything from food to utilities costs more, that can affect your budget beyond your monthly mortgage payment.

Here’s a breakdown of how much house you can afford at different income levels using the 28/36 rule:

Pros and cons of buying a home with a $70,000 salary

Monthly mortgage payments explained

Understanding the different components of your monthly mortgage payment is key to ensuring you can afford a home on any salary. Here’s what they generally include:

• Principal: This is the total amount of money you originally borrowed.
• Interest: This is what the lender charges for you to borrow money. At the start of your loan, more of your monthly payments will go toward your interest than your principal.
• Mortgage insurance: Some types of loans, like FHA loans, require this. You may also need PMI on conventional loans with less than 20% down.
• Homeowners insurance premium: This is used to cover certain damages to the property. It’s usually tacked on to your monthly payment. Your premium can fluctuate over time.
• Property taxes: These are also added to your monthly payment amount. They’re usually a percentage of your property’s value. Like your homeowners insurance, your property taxes may increase over time.

Your price range and home search strategy

Taking on a home loan is a major financial decision, so it’s important to be as prepared as possible. Be sure to factor in your annual income and monthly expenses.

Increasing your down payment amount, raising your credit score, and boosting your income can all help you get there. You can also use first-time homebuyer programs.

When in doubt, hold off on buying a house until you’re financially ready to handle the cost. Remember, the best time to buy a home is dependent on you and your goals. Only you’ll know when you’re ready.

One other thing to keep in mind is current housing market trends. Inflation and the economy can have a major impact on your mortgage rate. Since your rate can directly affect your monthly payment amount, you’ll want to get the lowest one possible. This is something you can do by purchasing discount points, increasing your down payment, and improving your credit score.

Overcoming homebuying hurdles

Here are the most common obstacles that can keep you from buying a home:

• Credit score: Poor credit or limited credit history can make it hard to qualify for traditional financing. You can look into mortgage options for bad credit, however, such as FHA loans.
• Employment verification: Most mortgage lenders require at least two years of consistent employment history. They’ll also need to verify your income, which they can usually do by reviewing your W2s, federal or state tax returns, and bank statements.
• High upfront costs: The down payment is one major challenge, but it’s not the only upfront cost buyers face: Closing costs are another. They include appraisal fees, government taxes, prepaid expenses like homeowners insurance or property taxes, and title insurance. You can sometimes roll these into your home loan, but this means taking on a larger monthly payment.
• Choosing the right property: Finding a home and location that meets your needs can take time, so start early and try not to stress out about it. You can search for properties online or work with a real estate agent to help you find the right place.

FAQ

Can I afford a house making $70,000 a year?

Yes. You’ll just have to calculate your monthly payment based on your income and other expenses. To improve your chances of getting approved for a loan, boost your credit score and save up for a larger down payment.

Can I afford a $400,000 house on a $70,000 salary?

If you’re following the 28/36 budgeting rule, this can be tricky. With a $70,000 annual salary, you’ll make about $5,833 each month. That means you can only dedicate around $1,633 of your earnings toward your housing payment. But a $400,000 house — assuming a 20% down payment and 7% interest rate — would cost about $2,498 including property taxes and insurance. It may not be the best option unless you can increase your income or take on a side gig. Make sure that the house you buy is one you’re likely to afford over the long term.

What credit score is needed to buy a house?

This depends on the home loan type and the lender. With an FHA loan, you could get a home with a 500 credit score and a 10% down payment. Most conventional loans require a 620 credit score or better.