As an entrepreneurship consultant who regularly advises clients on major financial decisions, one of the most common questions I get is "How much house can I afford on my income?" This is an excellent question to ask prior to making what will likely be the biggest purchase of your life.
In this article, we will learn how much house can you afford if you make $70,000 a year. Let us take a look.
Calculating Your Maximum Monthly Housing Budget
The key factors that determine home affordability include:
- Gross monthly income
- Total monthly debts
- Interest rates
- Down payment amount
As a general rule of thumb, your maximum monthly housing budget should be:
28% of Your Gross Monthly Income
With an annual income of $70,000, your gross monthly income equates to $5,833 per month (calculated by dividing your annual income by 12 months).
- 28% of $5,833 is: $1,633
This means you can allocate $1,633 per month towards total housing costs, including mortgage principal/interest, property taxes, insurance, PMI, and HOA fees.
Expert Tip: Getting pre-approved for a mortgage will help determine loan amount options and price ranges that align with this $1,633 budget.
Factoring in Your Monthly Debts
Mortgage lenders will assess your total outstanding monthly debts (or debt-to-income ratio) to determine loan eligibility. As a general guideline:
Your Total Monthly Debts Should Not Exceed 36% of Gross Monthly Income
Here is the math on the 36% calculation:
- Gross Monthly Income: $5,833
- Maximum Total Debt (including future mortgage): 36% of $5,833 = $2,100
Tally up your monthly payments owed on all existing debts like auto loans, student loans, and credit cards. Ensure your total plus the estimated future mortgage payment does not surpass $2,100.
Pro Tip: The lower your DTI ratio, the better mortgage terms and rates you can secure, making home ownership more affordable.
Down Payments, Interest Rates, and Affordability
The mortgage loan type and terms will significantly impact affordability:
Down Payment
- Conventional Loans: Require 3-20% down
- FHA Loans: Allow down payments as low as 3.5% for qualified buyers
Putting 20% down avoids expensive PMI payments added to your monthly mortgage bill.
Interest Rate
- 720+ credit score ideal for best rates
- Compare mortgage interest rates across multiple lenders
- Lower rates = lower monthly payments
I advise clients to get pre-approved with multiple lenders and shop for the most competitive rates before house hunting. Securing the best rate for your financial profile makes a huge difference in affordability.
Insider Tip: Use an online mortgage calculator to estimate monthly payments across various home prices, down payments, rates, etc. to gauge affordability.
Recommended Home Price Range on $70K Income
Given the above budget calculations and financing considerations for a $70,000 annual salary:
You can likely afford a home priced between $250,000 to $350,000.
Run the numbers with your specific debts, down payment, etc. to customize your affordable price range. Get pre-approved to confirm exact loan amount eligibility.
As your friendly neighborhood entrepreneurship consultant, I always advise working with a mortgage professional and financial advisor as well to consider all factors in determining what you can afford.
Armed with this information and expert guidance around home affordability, you can shop confidently while staying within budget! Let me know any other questions.
