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

After several years of renting and moving in and out of different spaces, you’re (finally!) in a comfortable enough space financially to take the plunge and start looking for a more permanent place to call home. But let’s say you make $70,000 per year (a little less than the 2021 median household income of $79,900, according to the U.S. Department of Housing and Urban Development), is it worth it to buy a home? And what can you actually afford right now?

While online affordability calculators can give you a great start, there are a ton of factors that go into what’s in your budget for your first home, including location, savings, debt, and credit score. It may seem like a lot, but it is possible to find a home you can actually afford while making $70,000 a year.

And regardless of what your annual salary is, remember that — ideally — your housing expenses should only comprise one-third of your take-home pay. We’ll break this affordability equation down into more detail later, but if you’re grossing $70,000, a monthly mortgage payment between $1,400 and $1,700 is probably where you’ll fit most comfortably.

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According to April Gongora Brown, a New Orleans-based agent who works with 73% more single-family homes than the average agent in her area, it’s completely doable to buy a home with that annual salary — as long as you find a good agent and a good lender.

“I try my best to get my clients to look at all of their options before committing to a lender and before we start hunting, even if they come to me preapproved, so that we’re not pigeonholed into only looking at a certain type of property,” Brown says.

Let’s break down these factors of what actually goes into paying for a home, so you can determine what’s in your budget.

What actually goes into your mortgage?

Instead of thinking of the price tag of a home as affordable, look at whether you can afford to borrow the money it will cost and can repay the loan in monthly payments.

First, let’s figure out what your ideal mortgage payment will be — also known as what you’ll be paying instead of rent. Aside from the actual mortgage, there are some key expenses that will impact your monthly payments.

Taxes and insurance

In addition to the cost of the home, you’ll have to pay property taxes that will vary widely depending on where you plan on living. The average American household spends $2,471 on property taxes for their homes each year, or around $206 a month, according to the U.S. Census Bureau. But the property tax in Alabama is 0.41%, while the tax in New Jersey skyrockets to 2.49%. So you’ll need to factor this location-based tax in to determine your affordability.

Typically, your lender will require you to purchase homeowners insurance that covers your mortgage just in case anything happens — but it’s a good idea even if you’re paying cash for your home. The average annual homeowners insurance premium was $1,249, or $104.08 a month, in 2021, according to the National Association of Insurance Commissioners, but this cost will, again, vary where you live. Your lender might have specific requirements about how much and what kind of insurance you need to buy depending on the population density, risk of natural disasters, and other factors.

“Most people are looking at how much their monthly [payment is] going to be, and sometimes we’ll find that the dollar amount that they’re quoted to qualify for and monthly [payment] works until we add in things like insurance,” Brown says.

You can also talk to an insurance agent as you start looking and ask them to price policies for you if you find a house you adore and you want to make sure it will be cumulatively affordable.

HOA dues

Nearly 74 million people in the United States live in a community with a homeowners association (HOA). If you purchase a home in one, you’ll need to pay monthly, quarterly, or yearly association fees that cover the maintenance of your community — including landscaping and development of shared spaces.

These fees can range from $100 to more than $1,000 each month, depending on the amenities in your association. Make sure you know whether you’ll need to pay HOA fees, so you can incorporate the cost into your monthly dues before you close on your new home.

Private mortgage insurance

If you can’t afford a 20% down payment on your home and apply for a conventional loan, you’ll have to have private mortgage insurance (PMI) to cover the costs, or just plain mortgage insurance for a government loan (FHA loans or VA loans, for example). PMI will typically cost between 0.5% and 2.5% of your loan value annually; the less you put down, the higher your PMI will be.

“The simple rule of thumb I tell buyers is that, typically, 40% of your monthly payment is taxes, insurance, mortgage insurance, and so on,” says Jeremy Larsen, a Dallas-based real estate agent with 13 years of experience. “Particularly with first-time buyers — the lion’s share of whom don’t have 20% to put down — they’re going to be paying private mortgage insurance, and it adds up. It really impacts purchase power.”

But in most instances, you won’t have to pay it every month until your mortgage is paid off. You can always refinance to get rid of it once you reach 20% equity. You can also cancel your PMI once your mortgage balance is 80% of the original purchase value of your home. However, as Larsen cautions, PMI will affect how much you can afford to buy right now, which is something to consider.

How much should I be spending on a mortgage?

According to Brown, you should spend between 28% to 36% of your take-home income on your housing payment. If you make $70,000 a year, your monthly take-home pay, including tax deductions, will be approximately $4,530. So, ideally, if we round that 28%-to-36% rule to one-third of your take-home income, you wouldn’t be spending more than $1,509 on your housing payment — don’t forget, that should include your principal and interest payment, taxes and insurance, any HOA fees, plus PMI or mortgage insurance if you have it.

But if you have no debt, you can stretch up to 40% of your take-home income, which will be devoting about $1,812 to your mortgage payment.

Ultimately, your monthly mortgage payment will strike a balance between what you feel comfortable paying and what your lender will approve.

6 other factors to consider when taking on a mortgage

1. Your savings

As mentioned earlier, if you make a down payment of less than 20% on a conventional loan, you’ll need to pay for PMI. But it’s important to make sure that your down payment and monthly expenses aren’t going to drain your bank accounts, and that you save some of that cash for emergencies. Not to mention, you’ll also need to put some of those savings toward the home inspection, appraisal, and closing costs.

The minimum down payment for an FHA loan is 3.5%, and 3% for certain conventional loans, so it isn’t necessary to devote most of your savings to your down payment and closing costs. In fact, if you get a VA or USDA loan and get the seller to pay the closing costs (an unlikely ask in a hot seller’s market!), you can buy a house with no money down at all.

2. Your debt

In addition to your mortgage payments, your lenders will take all your outstanding debt into consideration for your mortgage loans, including student loans, credit card debt, car loans, or other recurring debts. That’s why Brown warns buyers not to drive home a new car before house hunting — you wouldn’t want your new car payments to cause any problems with your mortgage qualification.

Remember: When it comes to your debt-to-income ratio, you shouldn’t be spending more than about 40% of your gross monthly income paying down debt, including your house payment. If you don’t have any current outstanding debts — congratulations! — you’ll have a larger range in terms of what you can afford.

3. Where you want to buy

When it comes to real estate, it’s all about location, location, location — especially when it comes to what you can afford. Every market and even every neighborhood within a market can be different, and you will probably find a variety of price ranges where you’re looking.

It’s also good to keep in mind the property taxes you’ll be needing to pay depending on the state or city you’re looking in and whether there’s any additional home insurance you’ll need (such as flood insurance).

4. The real estate market

While there isn’t a consistent “national” real estate market (the market varies within each state and city), there are times when home prices tend to climb, plateau, and, sometimes, fall. Check up on the current housing market in your area to get a sense of how expensive homes will be.

5. Mortgage interest rates

Along with other factors, the interest rate on your mortgage will also depend on your credit score, so the lender can mitigate their risk — the higher your credit score is, the lower the rate will be. And the lower the rate, the more buying power you’ll have.

It’s always a good idea to touch base with a mortgage lender before you get too far into the process of searching for a new home — but an experienced agent will also be able to help guide you in the right direction when you’re just getting started.

“Whether a client has talked to a lender or not yet, I make sure that we have a conversation and a dialogue to ensure that, while we’re searching for a home, we have a good fit for what their financial goals are and a payment they’re comfortable with,” says Larsen.

6. Mortgage terms

Depending on how much you want your monthly payment to be and how much you have available to put down, you may be able to choose between a 15-year or a 30-year loan, and many lenders will create a loan for you with custom terms. With the shorter loan, you will often get the very best interest rate, Brown says.

“You can always save even more on what you’re borrowing by paying a little bit more every month on the principal or the interest, rather than just taking all this money out of your savings to put down on the home,” she adds.

A good lender will be happy to strategize with you, but it’s safe to assume that the stronger your credit history and the higher your down payment, the more flexibility you’ll have with your loan terms.

How can I calculate a mortgage I can afford?

Using HomeLight’s simple Home Affordability Calculator, you can plug in your information to get a sense of what mortgage you can afford.

Below are some hypothetical examples (generated in June 2022) for buyers who make $70,000 a year with different sizes of savings, debt, and different credit scores.

The big saver with OK credit

Location: Shreveport, Louisiana
Gross annual income: $70,000
Money saved: $80,000
Amount of money for a down payment and closing: $70,000
Monthly debt: $250
Credit score: Average (630-689)

After plugging in these numbers, HomeLight estimates that you can afford a home that costs $275,218, with monthly payments of $1,850. Let’s break down how everything factors in:

Debt-to-income-ratio: 36%
Safety-net (months): 5.4
Mortgage payment: $1,151
Property taxes: $345
Homeowners association fee: $250
Homeowners insurance: $104
Down payment: $58,841
Estimated closing costs: $11,159
Annual interest rate: 4.92%
Mortgage term: 30 years

Great credit with limited savings

Location: Albany, New York
Gross annual income: $70,000
Money saved: $15,000
Amount of money for a down payment and closing: $10,000
Monthly debt: $750
Credit score: Excellent (720-850)

After plugging in these numbers, HomeLight estimates that you can afford a home that costs $173,702, with monthly payments of $1,350. Let’s break down how everything factors in:

Debt-to-income-ratio: 36%
Safety-net (months): 3.7
Mortgage payment: $791
Property taxes: $237
Homeowners association fee: $250
Homeowners insurance: $71
Down payment: $2,902
Estimated closing costs: $7,098
Annual interest rate: 3.75%
Mortgage term: 30 years

No debt with middle-of-the-road credit

Location: St. Louis, Missouri
Gross annual income: $70,000
Money saved: $25,000
Amount of money for down costs: $20,000
Monthly debt: $0
Credit score: Good (690-719)

After plugging in these numbers, HomeLight estimates that you can afford a home that costs $282,997, with monthly payments of $2,100. Let’s break down how everything factors in:

Debt-to-income-ratio: 36%
Safety-net (months): 2.4
Mortgage payment: $1,331
Property taxes: $399
Homeowners association fee: $250
Homeowners insurance: $120
Down payment: $8,530
Estimated closing costs: $11,470
Annual interest rate: 4.13%
Mortgage term: 30 years

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Writer Summer Rylander contributed to this updated story.

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