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

Buying a home on a $70,000 salary — a bit below the national median household income of $74,580, according to Census data — might be a tight squeeze. That’s especially true in today’s high-rate environment, which makes affordability even more challenging, and worse if you have your heart set on an expensive metro area with a high cost of living. However, if you explore flexible loan products and more affordable locations, you may still have some homebuying options. Let’s do the math to see what kind of house you can afford on a $70K salary.

The 28/36 rule

No matter how much money you make, to estimate how much you can afford to spend on a home, many experts recommend the 28/36 rule as a great place to start. This guideline states that you should spend no more than 28 percent of your income on housing costs, and no more than 36 percent on your total debt payments, including housing costs. (So that would also include credit card bills, car payments and any other debt you may carry.)

Breaking down the math to apply the 28 percent rule, here’s how much you can afford in housing payments on your salary:

• $70,000 per year is about $5,833 per month.
• 28 percent of $5,833 equals $1,633, so that’s the upper limit on how much you should spend on monthly housing costs.
• Assuming a 20 percent down payment on a 30-year fixed-rate loan at an interest rate of 7 percent, you can afford the payments on a $240,000 home, according to Bankrate’s mortgage calculator. That scenario would yield principal and interest payments of $1,277 per month, which gives you a few hundred dollars to cover variables like property taxes, home insurance premiums and HOA fees (if applicable), before hitting that $1,633 max.

Keep in mind, though, that a 20 percent down payment on a $240,000 home is $48,000, a significant amount of savings. You’d need to pay that full amount upfront, plus closing costs, to get to a monthly payment that comes in below your limit. A less expensive home or a lower mortgage interest rate would also lower the monthly cost.

How much house can you afford?

Besides salary and the price tag of the house, many other factors influence how much house you can afford on your $70,000 income. Take the following considerations into account as you create your budget:

• Down payment amount: The more you are able to pay upfront, the less you’ll need to borrow for your home purchase. Making a larger down payment might hurt today, but it will save you plenty of money in principal and interest costs in the long run, if you can swing it.
• Credit score: Lenders view your credit score as a key indication of your ability to repay your home loan, so you do whatever you can to up that number before applying for a mortgage. A stronger credit score will get you a lower mortgage rate, which means you’ll pay less interest on the money you borrow.
• Debt-to-income ratio: It’s also important to present a favorable debt-to-income ratio, or DTI, which is a measure of your income versus your total debt. Ideally, your DTI should be under 36 percent — the other piece of the 28/36 rule — but some lenders are willing to go slightly higher.
• Location: Considering that the national median home price in August 2023 was $407,100, a budget of $240K will likely price you out of many areas and leave you with fewer options than those shopping at higher price points. You’ll need to be flexible in terms of home size and geography. However, many metro areas have prices right around your max: The median price in Indianapolis, for example, is right on target at $240K, according to Redfin. Don’t forget, also, that median means half the homes sold for more, and half for less. So just because a market’s median price is above your limit doesn’t necessarily mean it’s out of your reach.
• Size: If a single-family home is out of your reach in your desired area, consider a condo or townhouse. These will have cheaper prices and can get you earning equity as a homeowner sooner.

Home financing options

Many different types of loans are available to support a home purchase. Much depends on your credit score and down payment amount, but a range of borrowers should be able to finance a home if they shop around to find a loan product that works for them. Here are some common examples:

• Conventional: This is the most popular way of financing a home purchase and typically requires a credit score of at least 620. If you qualify, you can put down as little as 3 percent for a down payment — but remember, that will result in more interest and principal to be paid over time.
• FHA: These flexible loans can be good options for those with lower credit scores. A score between 500 and 579 requires a 10 percent down payment, and with a score of 580 or higher you can put down just 3.5 percent.
• USDA: These loans serve low- and moderate-income borrowers in designated rural areas, so if you’re not hoping to live in a big city, they’re worth looking into.
• VA: No down payment at all may be required for qualified military service members, veterans and surviving spouses to get a VA loan.

First-time homebuyer programs

The thought of saving for a hefty down payment on your $70K salary might feel daunting. Luckily, help is available, especially if you’re buying your first home. Many state and local governments throughout the country have down payment assistance programs that offer low-interest and forgivable loans, as well as grants, to help offset down payment and closing costs for qualified borrowers.

Mortgage preapproval

Before you even start house-hunting, it’s smart to get preapproved for a mortgage. This is an important budgeting step: A preapproval letter gives you a good estimate of how much a lender might be willing to loan you, which can help you keep your search within realistic parameters. A preapproval submitted with an offer also shows sellers that you can afford the purchase, which can help a lot in competitive markets.

Next steps

Ready to start your homebuying journey? Finding an experienced local real estate agent is a good first step. An agent who knows your market well can guide you toward homes within your budget, or toward affordable areas you might not have thought of, and can also help ensure a smooth transaction all the way through to closing.