One of the most important questions to ask yourself during the homebuying process is how much house you can afford based on your income.
However, your income isn’t the only important factor when it comes to home affordability. Your debt, down payment, credit score, and other factors also play a role.
That’s why the amount of house you can afford on $70,000 a year depends a lot on your individual circ*mstances.
How much house can you afford on $70,000 a year? A mortgage calculator can help you figure it out
As we said, income isn’t the only factor in how much house you can afford. But it is a major one.
Although the only way to know for sure how much you’ll be able to borrow is to get preapproved*, you can get a rough estimate by plugging your income and a few other key numbers into a home affordability calculator like the one below.
You can see how different elements change your affordability prospects. But keep in mind that the numbers you see in the calculator are estimates, and that your interest rate and approval amount will depend on your unique circ*mstances.
Your down payment, for example, can change your buying power. Putting $50,000 down instead of $20,000 raises your buying power by around $36,000 based on our home affordability calculator.
As you can see, a lot more than your annual income determines your maximum home price.
Related reading: How Much House Can I Afford on $50,000 a Year?
How your income affects how much house you can afford
It probably comes as no surprise that your income is one of the most important factors that lenders look at when deciding when to approve you for a mortgage. Lenders want to see that your monthly income allows you to comfortably make your mortgage payment.
With an annual income of $70,000, your gross monthly income comes out to about $5,833 per month.
When you apply for a mortgage, your lender will ask for proof of income, which can include:
- Pay stubs
- W2s
- Tax returns
- Business tax returns if you are self-employed
- Profit and loss statements if they need additional information on your business income
In addition to your income, your lender will calculate your debt-to-income ratio (DTI). We’ll explain more about DTI in the next section. But in short, it’s a comparison of your monthly debt payments versus income.
Not only does your lender need to verify that you earn enough to cover the monthly mortgage payment, they must prove you can afford it in addition to your other debts and living expenses.
The good news is, you can use several types of income to qualify:
- Employee wages
- Bonuses, overtime, and commissions
- Self-employment income
- Investment dividends
- Rental income
- Alimony or child support
- Social Security income
- Retirement income
- Social Security Disability Insurance (SSDI)
Related reading: I Make $35,000 a Year. How Much House Can I Afford?
Other factors that affect how much house you can afford
While your income might be the first thing lenders ask about when you apply for a mortgage, it’s not the only factor that matters. Below are a few other criteria that determine how much house you can afford on your $70,000 income.
Debt-to-income ratio
You might remember that your debt-to-income ratio (DTI) refers to the percentage of your gross monthly income that goes toward debt.
There are two types of DTI: front-end and back-end DTI. Front-end ratio: Housing debt payments vs income
- Front-end ratio: Housing debt payments vs income
- Back-end ratio: Housing + non-housing payments vs income
Front-end DTI ratio example:
- Gross monthly income = $5,833
- Principal and interest payment = $1,250
- Property taxes = $250
- Property insurance = $50
This borrower’s total monthly housing cost equals $1,550.
$1,550 (housing expenses) ÷ $5,833 (gross monthly income) = 26% front-end DTI
That’s before all other debt payments. When you apply for preapproval, your lender must ensure that your back-end DTI (all payments) meets the requirements for your loan program.
Now let’s look at the back-end DTI for this borrower.
Back-end DTI ratio example:
- Monthly credit card payment = $50
- Monthly student loan payment = $500
- Monthly car payment = $350
$2,450 ($900 total debt payments plus $1,550 future housing payment) ÷ $5,833 income = 42%
The maximum allowed back-end DTI depends on the loan program you’re using:
- Conventional loans: 45%
- FHA loans: 50%
- VA loans: 43%
- USDA loans: 43%
Lenders may be able to approve you for a government-backed mortgage (FHA, VA, or USDA) with a higher DTI if you have compensating factors that prove your creditworthiness. These factors may include high income, a large down payment, or excellent credit, though guidelines vary from lender to lender.
As you can see, the amount of house you can afford on $70,000 a year depends on your monthly debt payments.
How student loans affect your mortgage eligibility
If you took on debt to pay for higher education, your student loans may be your biggest hurdle to affording a home. The most recent data put the pre-pandemic average student loan payment at $393 per month.
The good news is that it’s totally possible to buy a home with student loan debt. Each loan program has its own rules for how lenders must factor student loans into your DTI. But it can help to enroll in an income-based repayment (IBR) plan before applying for a mortgage.
Some loan programs allow lenders to use the monthly payment on an income-based repayment plan as part of your DTI, rather than a percentage of your loan balance. That is a game-changer for many homebuyers, as the option to use their IBR payment can make the difference in getting approved.
Learn more: Buying a Home With Student Loans: How to Get a Mortgage While Paying Down Student Debt
Credit score
Your credit score is another important factor in qualifying for a mortgage.
In general, you’ll need a credit score of at least 620 to qualify for a conventional mortgage, meaning a loan that is not an FHA, VA, or USDA loan. However, keep in mind that the higher your credit score, the better your chance of getting a competitive interest rate.
You can qualify for a mortgage with a low credit score as well. Here are the minimum credit score requirements for common loan types:
- Conventional loans: 620
- FHA loans: 580 with a 3.5% down payment; 500 with a 10% down payment
- VA loans: 580
- USDA loans: 640 (some lenders allow a lower score)
As with DTI, lenders may be able to approve borrowers for VA and USDA loans if their credit scores are lower than the recommended minimums but they are otherwise creditworthy.
Down payment
The size of your down payment also affects how much you can afford, and it can affect your interest rate. The more you put down, the less you need to borrow, which means your lender is taking on less risk.
Borrowers who request a lower amount of money for their loan are often rewarded with better interest rates. And interest rate affects your monthly mortgage payment, which affects how much house you can afford.
The down payment requirements for common loan programs are:
- Conventional loan: 3% down
- FHA loan: 3.5% down payment
- VA loan: 0%†
- USDA loan: 0%‡
Your down payment amount also affects whether you will owe mortgage insurance, which gets calculated into your monthly payment. If you put down less than 20% on a conventional loan, you will owe private mortgage insurance (PMI). You can request that PMI be removed once you have 20% equity in the home.
Learn more: When Does PMI Go Away? How To Get Rid of Private Mortgage Insurance
Interest rate
When you first buy a home and start making payments, you’ll find that the majority of each monthly payment goes toward interest rather than your mortgage principal.
Because interest is such a large part of your mortgage payment, increasing or decreasing your interest rate can also play an important role in how much home you can afford.
To give you an idea of how important your interest rate is, the difference between a 3% and 4% interest rate on a $300,000 mortgage is more than $150 on your mortgage payment.
Interest rates depend somewhat on the broader economy, and rates are increasing right now. But they’re also tied to your credit score, down payment, the type of property you’re buying, and the type of loan you’re using to purchase the home.
How to make homeownership more affordable
If you're finding you can't afford the house you'd like on $70,000 a year, there are several ways to increase the amount of home you can afford:
- Improve your credit score: A higher credit score can lead to lower rates and more affordable payments. You can increase your credit score by paying your bills on time, paying down your balances, avoiding opening new credit right before you apply for a mortgage, and disputing any errors on your credit report
- Save a larger down payment: Putting down a larger down payment can make homeownership more affordable for several reasons. First, it reduces the amount you have to finance, which lowers your monthly payment. A larger down payment can also help you get a lower interest rate and avoid paying PMI (or at least shorten the amount of time you’ll have to pay mortgage insurance)
- Pay down debt: As we mentioned, your DTI is an important factor in determining your mortgage eligibility. If you have considerable debt, whether it be student loans, credit cards, or another form of debt, you can increase the amount of home you can afford by paying down debt, therefore reducing your DTI
- Move to a lower cost of living area: Home prices vary significantly in different parts of the country. Average home prices vary from just $126,948 in West Virginia to $828,002 in Hawaii. And while moving to another state may not always be an option, you can find more affordable homes by moving out of a major metropolitan area or an area with notoriously high housing costs
- Increase your income: Your annual income is one of the two factors used to determine your DTI. If you want to increase the amount of home you can afford, asking for a raise, seeking a higher-paid position, or starting a side gig can help you do that
Check your mortgage credit score for free.
The bottom line
How much house can you afford on $70,000 a year? Well, that depends.
Your income is one of the most important factors in determining how much house you can afford. Your DTI, interest rate, down payment, and other factors all play a role as well.
The good news is that at $70,000, your income is slightly higher than the median annual household income of $67,521. Depending on the rest of your financial situation, you may already be well on your way to affording your dream home.
This article does not constitute tax advice. Please consult a tax advisor regarding your specific situation. Fairway is not a registered or licensed credit management service provider.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal. †A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. ‡USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits.
