you do not need to be debt free to purchase a home. you just need to show that you have enough income to make all your debt payments, including the new house. there are lots of ``how much house can I afford'' resources online that can help.
If you're an aspiring homeowner, you may be asking yourself, “How much house can I afford a with $70K salary?” If you make $70K a year, you can likely afford a home between $290,000 and $360,000*. That's a monthly house payment between $2,000 and $2,500 a month, depending on your personal finances.
Potential home buyers that may have too much debt may limit the size of mortgage they are qualified to borrow. On the other hand, those who pay off debt too close to the date of application may experience other issues while obtaining a mortgage due to fluctuations in their credit score.
The Importance of Interest Rates
When rates are low, you can afford more home. When rates climb, not so much. For example, with a 4% mortgage interest rate, your $2,000 payment could get you a home loan for around $335,000. But if that rate jumps to 6%, the same payment might only stretch to about $270,000.
Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
If trends are telling you to purchase right away, you may want to save up for a home. If you're going to hold off for a while and are worried about rates, you may want to work on paying off debts as things like credit score and DTI could influence your mortgage rate and terms.
You should aim to keep housing expenses below 28% of your monthly gross income. If you have additional debts, your housing expenses and those debts should not exceed 36% of your monthly gross income. Your max purchase budget is the loan amount that lenders could probably give you based on what you've told us.
Your debt-to-income (DTI) ratio is a key factor in getting approved for a mortgage. Most lenders see DTI ratios of 36% as ideal. Approval with a ratio above 50% is tough. The lower the DTI the better, not just for loan approval but for a better interest rate.
The rule of 2.5 times your income stipulates that you shouldn't purchase a house that costs more than two and a half times your annual income. So, if you have a $50,000 annual salary, you should be able to afford a $125,000 home.
If you make $70,000 a year, your hourly salary would be $33.65.
You can buy a $300,000 house with only $9,000 down when using a conventional mortgage, which is the lowest down payment permitted, unless you qualify for a zero-down-payment VA or USDA loan. Different lenders have different rules, but typically they require a 620 credit score for conventional loan approval.
However, under the U.S. Treasury's Geographic Targeting Order, there are certain areas of New York, California, Texas, and Florida where cash real estate purchases over a certain threshold must still be reported.
Line chart showing how the share of mortgage-free homes increased from 34.3% in 2012 to 39.3% in 2022, an increase of five percentage points.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
Should you pay off debt before buying a house? Not necessarily, but you can expect lenders to take into consideration how much debt you have and what kind it is. Considering a solution that might reduce your payments or lower your interest rate could improve your chances of getting the home loan you want.
If you make $3,000 a month ($36,000 a year), your DTI with an FHA loan should be no more than $1,290 ($3,000 x 0.43) — which means you can afford a house with a monthly payment that is no more than $900 ($3,000 x 0.31). FHA loans typically allow for a lower down payment and credit score if certain requirements are met.
Being debt-free is a financial milestone we often hear about people striving for. Without debt, you can focus on building more savings, investing those extra funds and just simply having more peace of mind about your finances.
You'll likely pay more interest over the life of the loan because you're borrowing more money. You may not be able to afford as much home as you could if you put money down. You'll have less equity in your home because you've put down less money.
They stay away from debt.
Car payments, student loans, same-as-cash financing plans—these just aren't part of their vocabulary. That's why they win with money. They don't owe anything to the bank, so every dollar they earn stays with them to spend, save and give! Debt is the biggest obstacle to building wealth.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Thailand. Is it possible to retire in Thailand and keep the costs in check? Certainly! It's another top choice for digital nomads with an achievable $500 monthly budget, focusing on affordable accommodation.