Qualifying for a mortgage | Affordability by monthly payment | Different types of home loans | Factors that will affect your budget | How much house to buy | FAQs
On a $70,000 income, you'll likely be able to afford a home that costs $280,000–380,000. The exact amount will depend on how much debt you have and where you live — as well as the type of home loan you get.
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In this article, we breakdown all the aspects of home affordability if you have a $70,000 annual income. To talk with a financial expert about your situation, click the link below to navigate to SmartAsset's quiz and get matched with a pre-screened advisor today.
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How much mortgage can I qualify for?
The 28/36 rule used by many finance experts states that your monthly mortgage payment shouldn't be higher than 28% of your gross monthly income. Your total debt shouldn't exceed 36% of your monthly income.
💡 Gross income = How much you make before taxes and deductions.
Many lenders use this rule too. They want to see housing expenses below 25–28% of your monthly pre-tax income and a total debt-to-income ratio below 33–36%.[1]
How to calculate your debt-to-income ratio
Your debt-to-income (DTI) ratio looks like this:
Total monthly debt ÷ Gross monthly income = DTI ratio
- Add up your monthly debt payments to get your total monthly debt.
- Determine your gross monthly income. This is the amount of money you make in a month before taxes and deductions.
- Plug in the numbers to the equation above and convert the total to a percentage. That's your debt-to-income ratio!
Here's an example of how it works:
In this case, we calculated Joni's gross monthly income by taking her yearly income and dividing it by 12 (70,000 ÷ 12 = 5,833).
Her debt-to-income ratio calculation looks like this: 450 ÷ 5,833 = 0.077 = 7.7%.
» MORE: A Step-by-Step Guide to the Home Loan Process
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How much house can I afford based on monthly payment?
With an income of $70k, your monthly gross income (pre-tax) is about $5,833. Your monthly mortgage payment (including HOA fees, taxes, etc.) should not be more than $1,633. And your total monthly debt payments — including car loans, credit card payments, etc. — should not exceed $2,099.
On a $70,000 income, here’s the total house payment you can afford to pay every month based on different levels of debt.
Keep in mind that you should have enough money saved to cover all your expenses for 3–6 months. This nest egg should be in a bank account where you can easily access it in case of an emergency, not in an investment account.
How much you should have saved when buying a house
What should I do if I have too much debt to afford a house?
Focus on paying down your debt, tackling high-interest loans first. Don't rush into buying a house, even if you can technically afford it on paper.
Create a budget, and track your spending so you know where your money goes every month. Make a plan to get your monthly debt payments (including mortgage) below 36% of your income.
Avoid spending more than 28% of your monthly income on home expenses. This could leave you "house poor," with little cushion to save for unexpected emergencies and to afford a comfortable lifestyle.
What are the different types of home loans?
You can choose from two basic types of mortgages: conventional and government-backed.
A conventional mortgage is any loan not insured by the federal government, while government-backed mortgages are guaranteed by the government.
» MORE: How Much Will My Mortgage Payment Be?
Conventional mortgages
There are a few different types of conventional mortgages. These loans aren't backed by the federal government, and they're a good choice if you have a solid credit score.
In most cases, conventional loans don't require you to put down the traditional 20% down payment. You can pay less than 20% up front. Most lenders, however, will require you to carry private mortgage insurance (PMI) until you have 20% equity in your home.
💡 What is home equity?
- Equity is the value that you have in your home.
- Calculate equity by taking the value of your home and subtracting what you owe on your home loan.
- For example, if you own a home worth $380,000, and you have $300,000 left to pay on your mortgage, you have $80,000 in home equity.
» MORE: A Home Equity Definition You'll Actually Be Able to Understand
Fixed-rate loan
This is the most popular type of conventional mortgage. You can choose between a 30-year or 15-year loan.
With a fixed-rate loan, the interest rate will not change over the lifetime of the loan. Depending on current mortgage rates, a fixed-rate loan may be higher or lower than an adjustable-rate mortgage loan (ARM). Either way, your rate will be locked in for the duration of the loan.
Adjustable-rate mortgage loan
An adjustable-rate mortgage is a loan with a generally low up-front interest rate, but the rate can change over the lifetime of the loan.
This type of loan may look attractive up front, but it can be volatile and risky. There's no cap to how high your interest rate may go! It's generally best for homeowners who don’t plan to stay in their home for a long time.
» MORE: Adjustable-rate Mortgages vs. Fixed-rate Mortgages: How to Choose?
Jumbo loan
Jumbo loans are for homes that are too expensive for a conventional mortgage loan, such as million-dollar homes. Of course, buying a million-dollar home is likely not in the stars on a $70k income.
Jumbo loans aren't backed by the Federal Housing Administration (FHA) and are best for buyers looking for an expensive home or who have a large income ($97,500 or above).
Jumbo loans are generally for homes above $548,250.[2]
» MORE: How to Afford a Million Dollar Home
Government-backed mortgages
A government-backed mortgage loan is a good alternative if you have poor credit or face other circumstances that may exclude you from qualifying for a conventional mortgage. It's also a good choice if you want to put less money down without paying for private mortgage insurance.
To secure a government-backed mortgage, you'll need to meet specific eligibility requirements.
Federal Housing Administration (FHA) Loan
FHA loans allow you to buy a home with a 3.5% down payment and a credit score starting in the upper 500s. These fixed-rate loans are insured by the FHA and are often used by first-time homebuyers.[3]
If you have a credit score below 620 and you're struggling to secure a conventional mortgage, an FHA loan can be an excellent way to go.
» MORE: 6 FHA Mortgage Requirements for Home Buyers
Veterans Administration (VA) Loan
If you've served in the National Guard or the armed forces, consider looking into a Veterans Administration loan. VA loans can allow veterans to purchase a home at a lower interest rate and with no down payment.
According to a 2020 study from the National Association of Realtors, VA loans are slightly more common among repeat buyers.[4]
United States Department of Agriculture (USDA) Loan
A USDA loan allows those who qualify to buy a home with $0 down and at a low interest rate. These loans are designed for people in low-income, rural areas. But the eligibility requirements are rather loose, so you may be surprised to find that you qualify.
The USDA's definition of "low-income" depends on the median household income where you live. If you live in a high cost of living area, you may be eligible on a $70,000 income.
The USDA's definition of "rural area" is also rather lenient — so you may qualify even if you live in a small town or suburb.
» MORE: USDA Rehab Loans: What Are They and How to Apply
8 factors that will affect your budget for buying a home
An income of $70,000 will look very different in New York City compared to Cleveland. Location plays a huge role in determining your budget for buying a home, and so do a number of other factors such as your interest rate, property taxes, and potential HOA fees.
JUMP TO SECTION
- 1. The interest rate on your home loan
- 2. Your credit score
- 3. The size of your down payment
- 4. The length of your mortgage
- 5. Property tax
- 6. Insurance
- 7. HOA fees, if applicable
- 8. And last but probably most importantly: location!
It can be confusing to figure out property taxes and interest rates on your own. By working with a realtor, you'll get the expert help you need to find the right house within your price range.
👋 MORE: Compare hand-picked agents, get incredible savings
1. The interest rate on your home loan
When you get a mortgage through a lender, you'll pay interest on that loan.
Interest rates fluctuate every day, and the rate you qualify for will depend on a number of factors including timing, your credit score, and your debt-to-income ratio.
As of today, rates for a 30-year fixed mortgage are 6.99000%.
What’s the difference between an interest rate and APR?
An annual percentage rate (APR) includes the extra fees you will need to get the loan, such as broker fees, discounts, and closing costs.[5] The interest rate, on the other hand, only refers to the interest on the loan.
Because it includes the extra fees, an APR will almost always be higher than the interest rate.
» MORE: What is the mortgage interest rate?
2. Your credit score
Whether you’re applying for a conventional loan or a government-backed loan, lenders will look at your credit score when determining whether to approve you for a loan.
For a conventional loan, each lender has their own criteria. But in general, you will need a FICO score of at least 620.
💡What is a FICO score?
A FICO score is a type of credit score developed by the Fair Isaac Corporation. Most lenders look at your FICO score to determine your eligibility for a loan.
For an FHA loan, you'll need a credit score of 580 or above to qualify for a low down payment: meaning you can buy a house and only put down 3.5%. If your credit score is below 580, you may still qualify for the loan, but you’ll have to put down 10%.
For a VA loan, you'll typically need a score of 620 or above to qualify.
The USDA does not require a minimum credit score for a USDA loan, so this will be determined by the lender. But in general, you'll need a FICO score of at least 640.
Mortgages to consider by credit score
| Your credit score | Type of mortgage to consider |
|---|---|
| 0–580 | Consider building your credit score first to qualify for a better rate. You may qualify for an FHA loan with a 10% down payment. |
| 580–620 | FHA loan |
| 620–640 | VA or conventional loan |
| 640+ | USDA or conventional loan |
How to check your credit score for free
You can check your own FICO score for free once a year via AnnualCreditReport.com.
This site will lead you through requesting a credit report from each of the three main credit reporting agencies: Experian, Equifax, and TransUnion.
Usually, you’re allowed to check your credit score once a year for free. But as of August 2021, due to COVID-19, the big three agencies are offering free weekly credit reports.
3. The size of your down payment
You're generally required to put down 20% of the cost of the home for a conventional mortgage. If you're purchasing an investment property, many lenders will require you to put down 25%.
If you put down less than this, you'll usually need to get private mortgage insurance (PMI) — unless you're getting a government-backed loan like a VA, USDA, or FHA loan.
Size of down payment by home price
| Home price | 20% down payment |
|---|---|
| $100,000 | $20,000 |
| $150,000 | $30,000 |
| $200,000 | $40,000 |
| $250,000 | $50,000 |
| $300,000 | $60,000 |
| $350,000 | $70,000 |
| $400,000 | $80,000 |
If you're a first-time homebuyer, you may qualify for certain down payment assistance programs. Look at this list provided by HUD of local home buying programs in your state.
Another great way to offset these upfront costs is through Clever's Cash Back program.
Connect with top local agents who can help you get a great deal on a new home. Eligible buyers also earn cash back after closing.
4. The length of your mortgage loan
The length of your mortgage loan will impact a couple of things: your monthly payment, and how much interest you pay over time.
30-year vs. 15-year mortgage loan payments
As you can see, your monthly payment for a 30-year loan is significantly lower than the 15-year loan. But you'll end up paying $33,597 more in interest over the lifetime of the loan.
» MORE: What are some popular loan options for first-time home buyers?
5. Property tax
Property taxes vary by city and county. In areas with high property taxes, your monthly tax bill can be as much as one-half of your mortgage payment.
To get an idea of how much your property tax bill will be, find your state on the map above. Then multiply the value of the home you're interested in by your state’s tax rate.
For example, let's say you want to buy a $250,000 condo in Illinois. The median tax rate in Illinois is 2.27%, so your annual tax bill will likely be around $5,675. (250,000 x 0.0227 = 5,675).
Divide this number by 12 to get your monthly payment: 5,675 ÷ 12 = $473.
As you can see, in states with a high property tax rate, your monthly tax bill can be steep. However, property tax rates are calculated differently depending on where you live in the state and the assessed value of the property.[6]
Deductions and exemptions can also reduce your tax burden. While the numbers above can give you a general idea of how much to budget for taxes, the exact figure will depend on your specific circumstance.
» MORE: The Top 10 Cheapest States to Buy a House in 2021
6. Insurance
In order to secure a loan, you'll need to show proof of homeowner's insurance. Home insurance protects your home and property from things like natural disasters, theft, and liability.
On average, home insurance costs $104 per month, or $1,249 annually.[7] The cost varies depending on where you live and the size of your home.
You may also need to carry private mortgage insurance (PMI) if you pay less than 20% for a down payment. PMI generally costs less than homeowner's insurance, but your premium will vary depending on the size of your home loan.
» MORE: How Much Does Home Insurance Cost? An In-Depth Guide
7. HOA fees, if applicable
Depending on what type of home or condo you buy, you may have to pay homeowners association (HOA) fees. These fees are typically used to maintain the building or community and cover maintenance, amenities, concierge services, etc.
Average HOA fees range from $200–300 per month but can vary widely depending on your city and amenities in your building.[8]
» MORE: What do HOA Fees Cover? (and Are They Worth It)
8. Location
As all good real estate agents know, it all comes down to location, location, location. How far your dollar goes — and what additional fees to budget for — depends on where you live.
Let’s compare the situations of two income-identical homeowners.
Randy is a 56-year-old software developer in Little Rock, Arkansas. Sherri is a 28-year-old data analyst in Trenton, New Jersey.
Randy from Arkansas vs. Sherri from New Jersey
Both Sherri and Randy have the same income, debt, and budget for a home. But Randy’s money goes much further than Sherri’s.
Randy only has to budget $200 for property taxes. That's because the property tax rate in Arkansas is 0.64% — compared to 2.44% in New Jersey.
Sherri, on the other hand, has to foot a $580 monthly tax bill. That eats away at her $1,600 budget and reduces the amount of home she can afford.
Randy ends up with a home that is almost twice the size of Sherri’s. This is because the median listing home price/sq ft is $118 in Little Rock compared to $138 in Trenton.
This goes to show that location has an enormous impact on how much home you can afford.
» MORE: How Much You Pay for a Mortgage Depends on Where You Live
How much house should I buy?
Knowing how much of a mortgage you can qualify for and knowing how much home you can actually afford are two different questions.
Location plays a large role in how far your money can go. In general, you'll be able to afford a more expensive house in an area with low property taxes. In areas with steep HOA fees, your budget will be more limited.
If you have a poor credit score, you might be approved for a high-interest loan. It may be best to improve your credit score first to qualify for a lower interest rate
The size of your household and your total income can also affect your budget. If you're an individual making $70,000, you can likely afford a larger home than if you're a single-income household with multiple dependents.
» MORE: The 20 Best Home Buying Websites in 2021
Tip for first-time home buyers
It can be tempting to look for a house at the very top of your qualifying threshold. But consider looking for a home in the middle of the range of what you can afford. This will give you some cushion to save for repairs, maintenance, and emergencies.
You can also practice setting aside a mortgage payment for several months in advance. Simply transfer the money to a separate bank account and don't touch it.
This also gives you time to adjust your budget before the pressure is really on. When you're ready to buy a home, you can use the money you've set aside as a down payment — or keep it as an emergency savings fund.
If you're weighing your options for buying or selling a house, Clever can help!
Our fully licensed concierge team can answer your questions and provide objective advice on getting the best outcome with your sale or purchase.
When you enter your info below, we'll ask you a few questions about your situation via a short form. Then our concierge team will be in touch shortly to help.
This service is free, and there’s never any obligation to move forward with us.
Frequently asked questions
How much interest will I pay over the lifetime of my home loan?
You may pay $69,000–114,000 in interest over the lifetime of your home loan. The exact number depends on the interest rate at the time you get the loan, the size of the loan, down payment, and the length and type of loan.
What credit score do I need to qualify for a mortgage?
In most cases, you'll need a FICO score of at least 620 to qualify for a conventional loan. You may be able to qualify for certain government-backed loans with a credit score of 580.
Should I get a 30-year or 15-year mortgage loan?
It depends on your situation. With a 30-year mortgage, you'll have lower monthly payments, which can help with your cash flow. If you get a 15-year mortgage, you'll pay less interest over the lifetime of the loan. Both are viable options, though 30-year mortgage loans are more common.
What’s the rule of thumb for how much house I can afford?
Follow the 28/36 rule. Don't spend more than 28% (or $1,633 on a $70k income) of your monthly income on a house payment. And spend less than 36% (or $2,100 on a $70k income) of your monthly income on your total debt.
How much of a house payment can I afford on a $70k income?
If you have between $0–450 in monthly debt payments, excluding your mortgage, you can spend up to $1,633 on a house payment. If your monthly debt is higher than $450, you should aim for a lower monthly payment.
How much mortgage can I qualify for on a $70k income?
On a $70,000 income, you'll probably qualify for a home loan between $250,000–400,000. The exact number will vary depending on your lender, the area you live in, and how much debt you have.
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