I was sitting in my Master’s of Social Work (MSW) class and we were discussing how people make major financial decisions under stress. That got me thinking about all the folks I work with who are trying to figure out home affordability. A $70,000 salary is actually pretty close to the national median household income, but the question everyone asks is always the same: "Can I really afford to buy a house?"
The honest answer? It depends, and I know that's frustrating to hear. Let me simplify this for you though.
In November 2025, the mortgage rate environment had actually improved from where we were at the start of the year. Average 30-year fixed mortgage rates are sitting around 6.12% for home purchases, based on Zillow data. That's a nice drop from the 7%+ rates we saw in January. The Federal Reserve finally started cutting rates in September, and that's helped bring some buyers back into the market.
But here's the thing, rates are just one piece of the puzzle. Your credit score, how much debt you're carrying, where you want to live, how much you've saved - all of these factors work together to determine what you can actually afford. Think of it like this: your income opens the door, but these other factors determine which room you end up in.
In this guide, I'm going to walk you through the seven main factors that determine home affordability on a $70K salary, give you real-world scenarios with actual numbers, and help you figure out your next steps. No fluff, just practical information you can use.
The Quick Answer: Between $180K and $350K (But Read the Details)
If you're just here for the ballpark figure, most people making $70,000 annually can afford a home in the $180,000 to $350,000 range. That's a pretty wide spread, right?
The old rule of thumb says you can afford a house worth three times your annual salary, which would put you at $210,000. But that's oversimplified and honestly a bit outdated given how much regional prices and lending requirements vary.
The national median home sales price hit $410,800 in Q2 2025, which means a $70K salary puts you below the typical buyer income in many markets. But don't let that discourage you. There are absolutely markets where $70K goes much further, and there are loan programs designed specifically for your income level.
The reality is that someone with excellent credit (740+), minimal debt, and a solid down payment saved might comfortably afford a $300,000+ home on $70K. Meanwhile, someone with fair credit (620-680), existing student loans or car payments, and only 3-5% saved for a down payment might need to look in the $180,000-$220,000 range to stay comfortable.
And here's what I mean by "comfortable" - not just qualifying for the loan, but actually being able to sleep at night without worrying about every unexpected expense. Because homeownership comes with surprises, believe me.
When I first moved from underwriting into project management, one thing that struck me was how much people focus solely on income when thinking about affordability. In my MSW program, we talk a lot about systems thinking, understanding how different parts of a system interact. Mortgage qualification really is a system, with your income as just one component.
Let's break down each one.
Most mortgage lenders still follow what's called the "28/36 rule" when evaluating how much house you can afford.
Here's how it works:
With a $70,000 salary, your gross monthly income is $5,833. Twenty-eight percent of that is $1,633 per month. That's your target maximum monthly housing payment, including principal and interest on your mortgage, property taxes, homeowners insurance, mortgage insurance if you put down less than 20%, and HOA fees if applicable.
Now, here's where it gets interesting. That 36% rule I mentioned? Fannie Mae's guidelines for conventional loans allow debt-to-income ratios up to 50% with automated underwriting. So while the traditional guideline is 36%, many lenders will go higher if you have compensating factors like excellent credit or substantial cash reserves.
The textbook answer is 28%, but really, lenders look at the complete picture. I've seen borrowers with DTI ratios in the mid-40s get approved because everything else in their financial profile was strong.
One thing to watch: that $1,633 monthly housing budget includes everything. If you're looking at homes in areas with high property taxes like New Jersey and Texas, a much bigger chunk of that $1,633 goes to taxes and insurance rather than the actual mortgage. This means you qualify for a lower purchase price even though your income is the same.
Let's talk about where rates actually are right now, because this changes everything about your buying power.
As of November 3, 2025, the average 30-year fixed refinance rate was 6.36%, according to Zillow data. Purchase rates are slightly lower at around 6.12%. That's actually good news compared to where we started the year. In January 2025, rates had jumped back above 7% for the first time since the previous May.
But let's be real for a second. These rates feel high because we all remember 2020-2021 when rates were in the 2s and 3s. My clients who locked in at 2.75% during the pandemic? They're not moving anytime soon. That's created what economists call the "golden handcuffs" effect – people literally cannot afford to sell and buy because they'd be trading a 3% mortgage for a 6%+ mortgage.
Here's what that rate difference actually means in dollars.
So yeah, rates matter. A lot.
Now, the good news is that rates have been trending down since September when the Fed started cutting. State mortgage rates vary significantly, ranging from 4.35% in Idaho to 6.85% in New Jersey for Q2 2025, based on WalletHub data. If you're shopping in certain markets, you might find better rates than the national average.
Your credit score also impacts your rate dramatically. Someone with a 760 credit score might get offered 5.9%, while someone with a 640 score might be quoted 6.5% or higher. That half-point difference? On a $200,000 loan, it's about $60 per month or $21,600 over the life of the loan.
Okay, this is where things get real. Your credit score might be the single most important factor besides income in determining what you can afford - not just the price of the house, but the actual long-term cost.
Here's what different credit score tiers typically mean:
Here's a real example of how this plays out:
Scenario A: 760 credit score
Scenario B: 640 credit score
That 100-point credit score difference costs you $83/month and nearly $30,000 over the life of the loan. On a $70K salary, that's almost half a year's income just... gone.
If your credit is below 680, honestly? Consider spending 6-12 months improving it before you buy. Pay down credit card balances, dispute any errors on your report, and don't open any new accounts. It's one of the few things in the home buying process you have complete control over.
Factor 4: Down Payment Size and The 3.5% vs. 20% Debate
Let's have a real talk about down payments, because there's a lot of misinformation out there.
First, you do not need 20% down to buy a house. I repeat: you do not need 20% down. Yes, 20% is ideal because you avoid mortgage insurance and get better rates, but most first-time buyers don't have that kind of cash sitting around.
On a $70K salary, saving 20% for even a $200,000 house means scraping together $40,000. If you're saving $500/month, that's almost seven years. By then, home prices will have increased, and you're back where you started. I've seen this trap people in renting forever, waiting for a down payment goal that keeps moving further away.
3% to 3.5% Down, Most Common Choice
5% to 10% Down, The Sweet Spot
Option A: 3.5% down with $7,700 upfront
Option B: 10% down with $22,000 upfront
Option C: 20% down with $44,000 upfront
Notice how much less that 20% down payment saves you monthly? That's $440 per month compared to the FHA option, or $5,280 per year. Over 30 years, we're talking about nearly $160,000 in savings.
But here's the thing: you need that extra $36,300 sitting in your bank account upfront. For most people making $70K, that's just not realistic when you also need money for closing costs, moving expenses, and an emergency fund.
My advice? If you can do 5-10% down, that's often the sweet spot. You get better rates than 3.5%, avoid some of the mortgage insurance costs, but you're not waiting another five years to buy.
And here's something people don't always know: you can refinance out of PMI once you hit 20% equity. So starting with 5% down and refinancing in a few years is a totally valid strategy, especially if home values are appreciating in your market.
I live in Louisville, Kentucky, and I can tell you that $70K goes a lot further here than it would in San Francisco or New York City. Like, a LOT further. My colleagues on the coasts are always shocked when I tell them what home prices look like in the Midwest.
As of 2026, median home prices range from $235,000 in Iowa to over $1 million in Washington DC and Hawaii, according to DataPandas data. That's more than a 4x difference between the cheapest and most expensive states.
But it's not just the purchase price that varies. Property taxes and insurance costs can make or break your budget.
See what I mean? A $220,000 home in New Jersey costs you $458 per month just in property taxes, while the same home in Alabama costs $73 per month. That's a $385 monthly difference, which directly impacts how much house you can afford on your $70K salary.
That $453 monthly difference means your actual mortgage payment budget shrinks by that amount. Using our 28% rule with $1,633 maximum, the New Jersey buyer has only $925 per month for principal and interest, while the Louisville buyer has $1,378. At 6.12% rates, that's the difference between affording a $152,000 loan versus a $227,000 loan.
The takeaway? Where you buy is almost as important as how much you earn. If you're flexible on location and making $70K, consider areas with lower property taxes and insurance costs. Your buying power increases dramatically.
Alright, this is where a lot of people get tripped up. We talked about the 28% rule for housing costs (front-end DTI), but lenders also look at your total debt picture (back-end DTI).
Here's what counts as debt in the lender's eyes:
For conventional loans underwritten through Fannie Mae's automated system, the maximum allowable DTI ratio is 50%, though manual underwriting typically caps at 36-45%.
Example: $70K Salary with Various Debt Loads
In Scenario 3, even though your income is $70K, your debt load means you can only afford a monthly housing payment of $1,458 instead of $1,633. That's a $175/month difference, which equals about $29,000 in buying power at current rates.
Here's what this means practically: if you're carrying significant debt on a $70K salary, your best move might be to spend 6-12 months aggressively paying down debt before applying for a mortgage. Every $100/month in debt you eliminate adds roughly $16,500 to your home buying budget.
One exception: FHA loans are more flexible with DTI ratios, potentially allowing up to 50% with compensating factors like strong credit or cash reserves. If you have debt but also have excellent credit and some savings, FHA might be your path forward.
This is the part where I need to be completely honest with you. The mortgage payment isn't your only housing cost. Not even close.
When I moved into my first home, I budgeted carefully for the mortgage, taxes, and insurance. What I didn't fully appreciate was all the other stuff that comes with homeownership. The first year, my water heater died ($1,200), then needed a new roof section after storm damage ($3,500 after insurance), plus all the regular maintenance I'd never thought about.
Here's what your actual monthly housing costs look like:
Grand Total Monthly: $2,005 - $3,125
Yes, you read that right. Your $1,500 mortgage can easily become a $2,500-$3,000 monthly reality once you include everything.
This is why lenders use the 28% rule - they want to make sure you have breathing room for these extra costs. If your mortgage payment maxes out at $1,633, your total housing reality might be $2,400+, which is 41% of your gross income or about 55% of your take-home pay.
I'm not trying to scare you off homeownership. These are all manageable, but you need to know they're coming. The people who get into trouble are the ones who squeeze every dollar into qualifying for the maximum mortgage amount, then have zero cushion when real life happens.
My recommendation: If you qualify for a $250,000 home, consider buying at $220,000 instead. That extra $30,000 in buying power gives you $150-200 per month in breathing room, which becomes your maintenance fund, your "water heater died" fund, and your "I want to enjoy my life not just survive" fund.
Okay, let's stop being theoretical and look at what real people in different situations can actually afford. I'm going to walk through six complete scenarios so you can find yourself in one of these.
Best for: Someone with decent credit who's saved diligently and ready to buy
Best for: Someone with fair credit and minimal savings who needs to buy now
Best for: Qualified veterans or active military who want maximum buying power
Best for: Patient savers with excellent credit who want the best terms
Best for: Someone with debt and fair credit who needs affordable monthly payments
Best for: Debt-free buyers who want to buy now vs. wait to save 20%
Let me break down the actual loan programs available and which makes sense for your situation.
AmeriSave offers conventional loans with competitive rates. You can get preapproved online to see your exact rate and monthly payment based on your complete profile.
Note: AmeriSave doesn't currently offer USDA loans, but your local credit union might.
This might be one of the most underused resources out there. There are literally billions of dollars in down payment assistance programs that go unused every year because people dont know about them.
oCity-specific grants for first-time buyers
oOften tied to buying in revitalization areas
oCan stack with state programs
oExample: Louisville offers additional $5,000 for buying in certain neighborhoods
oSome employers (hospitals, universities, large corps) offer assistance
oUsually forgivable loans with 3-5 year employment commitment
oWorth checking with HR
oFederal programs through FHA
oOften have free home buyer education requirement
o8-hour class gets you access to better terms
Real talk? I've seen people get $8,000-$12,000 in combined assistance that they never have to repay if they stay in the home for 5 years. On a $70K salary, that could be the difference between buying this year vs. waiting another two years to save.
Okay, I'm running low on steam here (long day, lots of meetings), but let me wrap this up with some clear next steps.
If you're making $70,000 and wanting to buy a home in 2025, you absolutely can make it happen. It's not easy in every market, and you'll need to be strategic, but it's very doable. In most areas of the country, $70K puts you in a position to afford a comfortable home in the $180,000-$280,000 range depending on your credit, debt, and savings situation.
The biggest mistake I see people make? They either think they can't afford anything (when they actually can), or they max out their approval amount and end up house-poor. Neither extreme is good.
Find your comfortable middle ground. You want a home you can afford AND a life you can enjoy.
Ready to see what you qualify for? Start your application with AmeriSave and get a real preapproval based on your specific situation. Our team can walk you through all your options and help you find the loan program that works best for your $70K income.
Yes, you can definitely do that, but your budget will be very different depending on where you live and your financial situation. The national median home price was $410,800 in the second quarter of 2025. If you make $70,000 a year, you are below the average buyer's income in high-cost markets, but you can still buy a home in most of the country.
In places where homes are cheap, like the Midwest, South, and many suburbs, $70,000 can easily buy you a nice home in the $180,000 to $280,000 range. That includes states like Ohio, Indiana, Kentucky, Alabama, Missouri, and parts of Pennsylvania where the median home price is less than $300,000. In expensive coastal areas, you'll have more trouble, but you can still find options if you're willing to change your location or the size of your home.
Your credit score (aim for 680 or higher), how much debt you already have (less is better), and how much you've saved for a down payment are the most important things. Even if they both make $70,000 a year, someone with a 720 credit score, little debt, and 5–10% saved will have a lot more options than someone with a 620 score, a lot of debt, and only 3% saved. Don't think you're out of luck until you talk to a lender and get preapproved. FHA and VA loans make it possible to buy a home even if you have bad credit or a small down payment.
The standard 28% rule says that your maximum monthly housing payment should be about $1,633 (28% of $5,833 gross monthly income). But the amount you actually pay will depend on the price of the house, the down payment, the interest rate, the property taxes, and the insurance costs in your area.
Here's how that $1,633 usually breaks down: $1,200 to $1,350 for the principal and interest, $150 to $300 for property taxes (which can vary a lot by state), $100 to $150 for homeowners insurance, and maybe $100 to $180 for PMI if you put down less than 20%. At current interest rates of about 6.12%, this payment plan usually works for a home loan of $200,000 to $230,000.
The most you can pay may not be what you can actually afford. I always tell people to figure out how much money they take home after taxes, retirement contributions, and health insurance, and then make sure their housing payment is no more than 30–35% of that amount. Depending on your state and deductions, your take-home pay on $70,000 is probably between $4,200 and $4,500 a month. That means a comfortable housing payment is more like $1,300 to $1,500 instead of $1,633. This gives you space for bills, upkeep, and having fun.
Also, keep in mind that your payment isn't always the same. Property taxes go up over time, insurance rates go up, and if you have an adjustable-rate mortgage, your rate could change. To cover these costs, set aside at least $200 to $300 a month in addition to your first payment. People who reach their preapproval limit often have trouble paying their bills after a few years as costs go up.
The amount you need to save depends on the loan program you choose and the price of the home you want to buy. Many people think that you have to put down 20%, but that's not true. Here are your realistic choices and how much money you would need to save for a $220,000 home (a reasonable goal for someone making $70,000 a year).
You only need to put down 3.5% for an FHA loan, which is $7,700 on a home worth $220,000. You will also need about $4,000 to $6,000 for closing costs, so you will need a total of $12,000 to $14,000 in cash. Most of the time, conventional loans want 5% ($11,000) down, but the minimum is 3% ($6,600). With closing costs, the total is between $11,000 and $17,000. If you're a qualified veteran or active military, you don't have to put any money down on a VA loan. However, you will still need $3,000 to $5,000 for closing costs. USDA loans also let you buy eligible rural and suburban properties with no money down and the same closing costs.
The wild card is that there are a lot of down payment assistance programs that can help you with 3% to 5% of the cost of your home. These loans don't have to be paid back if you stay in the home for 3 to 5 years, and they can be combined with loans that require a low down payment. When buyers combine an FHA loan with state down payment help, I've seen them only need $5,000 to $8,000 out of their own pockets. Visit the website of your state's housing finance agency to find out what's available.
If you make $70,000, I suggest you try to save at least $10,000 to $15,000. You have choices. You can put down 5% and get a conventional loan, or you can put down 3.5% and get an FHA loan, leaving you with money for emergencies, closing costs, and moving costs. You have even more freedom if you can get to $20,000–25,000. You won't feel like you don't have enough money right after closing. Don't spend all of your savings. After you buy, make sure you have at least $3,000 to $5,000 set aside for emergencies.
The minimum credit score depends on the type of loan you want. For example, you need at least 620 for a conventional loan, 580 for an FHA loan with 3.5% down, or 500 for an FHA loan with 10% down. But just meeting the minimum doesn't mean you'll get good terms. Your credit score has a big effect on your interest rate and, by extension, your buying power.
If you have a credit score of 760 or higher and an income of $70,000, you'll get the best rates (currently around 5.8% to 6.0%), the most lenders to choose from, and the easiest approval process. Depending on how much debt you have, you might be able to get a home worth up to $280,000–$300,000. With a score between 700 and 759, you're in good shape. Standard rates are between 6.1% and 6.3%, and you can easily afford homes that cost between $220,000 and $260,000. Credit scores between 680 and 699 are considered "good." Rates are a little higher, around 6.3% to 6.5%, but you can still get most loans. You might just have to go through a little more scrutiny.
Things get harder in the 620–679 range. You can get regular loans, but the rates will be much higher (6.5–6.8%) and you may need to make larger down payments or pay more for mortgage insurance. You won't be able to buy as much as you could before. You might only be able to afford homes in the $180,000–$220,000 range. It gets very hard to get a conventional loan if your credit score is below 620, but you can still get an FHA loan with a score as low as 580. If your credit score is between 580 and 619, you can expect rates between 6.5% and 7.0% and homes that cost between $180,000 and $210,000.
The real difference is that on a $200,000 loan, a 6.0% rate (for people with good credit) costs about $100 more per month than a 6.8% rate (for people with fair credit). Over the life of the loan, that's $36,000. If your score is less than 680, you should think about working on it for 6 to 12 months before you buy. Pay off your credit cards so that you use less than 30% of their limits, fight any mistakes on your report, and don't open any new accounts. Every 20-point improvement could save you thousands of dollars.
This is probably the most common question I get right now, and the short answer is: probably not. Here's why: It's almost impossible to time the mortgage market, and waiting usually costs you more than you'd save even if rates do go down.
Rates right now, around 6.12% (Zillow, November 2025), are much better than the 7%+ rates we saw in January 2025. Most economists think they won't go back down to the 2-3% pandemic-era lows. The Fed has begun to lower rates, which is helping, but experts think rates will stay between 5.5% and 6.5% instead of dropping a lot lower. Even if rates go down by another half point in the next year, you'll miss out on home price increases and another year of rent payments.
I'll show you the numbers. For example, you could wait a year and hope that rates go down from 6.2% to 5.7%. That saves you about $65 a month on a $220,000 loan. But if you pay $1,400 a month in rent right now, you've spent $16,800 on rent that doesn't build you any equity. Meanwhile, home prices have been going up steadily, and in June 2025, the median price hit a record high of $435,300. If homes in your area go up only 3% that year, the $220,000 home is now worth $226,600. You could save $780 a year by getting a lower rate, but you've already lost $6,600 in appreciation and spent $16,800 on rent. The math doesn't add up.
You can also always refinance if rates go down a lot in the future. If you buy now at 6.2% and the rate drops to 5.2% in two years, you can refinance and get the lower rate. Yes, you'll have to pay closing costs again, which are usually between $3,000 and $5,000. However, you'll get that money back in about four to five years of lower payments, and in the meantime, you'll have built equity.
Instead of asking "should I wait for rates?" you should ask "am I financially ready to buy right now?" If your credit, debt, savings, and job stability are all good, and you've found a home you can afford at today's rates, then go ahead and buy. If you can't afford it yet, wait. But don't wait just because you think rates will go down. Hope is not a plan for getting a home. Your credit score, savings, and debt levels are all things you can control.
Location could be the most important thing after income that affects how much you can buy. In some markets, a $70,000 salary can make you feel rich, while in others, it can make you feel poor. In 2026, the average price of a home will be between $235,000 in Iowa and over $1 million in Washington, D.C. and Hawaii. This means that your money will buy more than four times as much.
If you make $70,000 a year in states like Ohio, Indiana, Kentucky, Alabama, Mississippi, Iowa, and Missouri, which are affordable in the Midwest and South, you are comfortably in the median buyer range. You can buy nice single-family homes in good neighborhoods that are usually 1,400 to 2,000 square feet and have yards. With a budget of $240,000, you can buy updated 3-4 bedroom homes in school districts that people want to live in. Property taxes are low (0.8% to 1.4%), and insurance is reasonable, so your monthly costs are easy to handle.
In places with moderate prices, like North Carolina, Tennessee, parts of Texas, Arizona, and Pennsylvania, you're still fine, but you need to be more strategic. With a budget of $240,000, you might have to buy a home in the outer suburbs instead of a neighborhood close to the city, or you might have to buy a starter home that you can later upgrade. These markets have been going up quickly, so it's more important to act sooner rather than later. Property taxes are very different in these states, so be sure to compare counties carefully.
In expensive coastal areas like California, New York, New Jersey, Massachusetts, and Washington, $70,000 is honestly on the low end of what buyers can afford. You're looking at condos, homes that need work, or places that are far away from work. There might not be any desirable areas with a $240,000 budget. But these states usually have strong down payment assistance programs and support for first-time buyers because housing costs are so high compared to incomes. You will need to be creative. Think about multi-family homes where you rent out units, look at new neighborhoods, or even think about whether moving to a less expensive area makes sense for your way of life.
Property taxes also have a big effect on how affordable things are. New Jersey's average tax rate is 2.5% per year, so a $220,000 home costs $458 a month just in taxes. Alabama has a 0.4% interest rate ($73/month), which is a lot lower than that. This shows how different monthly payments can be for the same home price. For the second quarter of 2025, state mortgage rates range from 4.35% in Idaho to 6.85% in New Jersey. This adds another layer of regional difference. Depending on where you live, the price, taxes, insurance, and rates can all change your buying power by 2 to 3 times.
Yes, you can still buy a house with student loans and a $70,000 salary. However, your debt-to-income ratio is the most important thing to think about. When lenders figure out how much you can borrow, they will include your monthly student loan payment in your total debt. This will directly affect how much you can buy.
This is how it works in real life. If you make $70,000 a year (or $5,833 a month before taxes) and have a $350 student loan payment, Most lenders will let you have a debt-to-income ratio of up to 43% to 50%. This means that your total monthly debts can't be more than $2,500 to $2,917. After you pay your $350 student loan, you have $2,150–2,567 left over for housing. That's actually still pretty good. You could afford a monthly housing payment of $1,500 to $1,600, which would cover a loan of $200,000 to $225,000, depending on the interest rate and down payment.
If your student loan payments are big compared to your income, though, it can be hard. If you have $600 in student loans and $400 in car payments, you've already used up $1,000 of your debt capacity before you even add a mortgage. If your DTI is 43%, you would have $2,500 total, but you already owe $1,000, so you only have $1,500 left for housing. That still works, but it means you can only buy a home in the $180,000–$200,000 range.
First, think about income-driven repayment plans that lower your monthly payment. Lenders usually use the actual payment amount, not your total balance. Second, pay off other debts quickly before applying. For example, getting rid of a $350 car payment gives you about $60,000 more to spend. Third, check out FHA loans, which are often more flexible and can allow for a DTI ratio of up to 50% if you have strong compensating factors like a good payment history or cash reserves.
One important thing to remember is that for DTI calculations, some loan programs (FHA in particular) will use either your actual payment or 0.5–1% of your total student loan balance, whichever is higher. If you have $40,000 in loans and are on an income-driven plan that costs $50 a month, they might use $400 a month (1% of $40,000) instead. To avoid surprises, ask your lender how they figure out your student loan payments. The bottom line is that student loans make it harder to buy things, but not impossible, even with an income of $70,000.
It all depends on your credit score, how much money you have for a down payment, and how long you plan to live in the house. For someone making $70,000, both types of loans can work well, but they have different pros and cons.
If your credit score is less than 680, you have less than 5% saved for a down payment, or your debt-to-income ratio is higher, choose FHA. FHA loans are more flexible with DTI ratios up to 50% and credit scores as low as 580 with 3.5% down. The 3.5% minimum down payment is easier to reach. For a $220,000 home, that's only $7,700, while for a 5% down conventional loan, it's $11,000. When you put down less than 5%, FHA loans also have lower monthly mortgage insurance costs than regular loans.
There are real problems with FHA, though. If you put down less than 10%, you have to pay both an upfront mortgage insurance premium (1.75% of the loan amount) and monthly mortgage insurance that lasts for the life of the loan. If you put 3.5% down on a $220,000 home, you'll pay about $177 a month in mortgage insurance premium that will never go away unless you refinance. That's a total of $63,700 in insurance costs over 30 years. With regular PMI, the insurance ends automatically after you reach 20% equity through payments and appreciation, which usually happens after 5 to 8 years.
If your credit score is 680 or higher and you can put down 3–5% (10% or more is even better), choose conventional. You'll pay less in interest, and your mortgage insurance will stop when you have 20% equity. Even though FHA lets you put less money down, someone with a 700 credit score who puts 5% down on a conventional loan will probably pay less overall. The breakeven point is usually between 620 and 660 credit scores. Above that, conventional usually wins.
Talk to your lender about the numbers both ways. Get quotes for both FHA and conventional loans based on your real credit score and down payment. Look at more than just the monthly payment. Look at the total costs over 5 to 7 years, which is how long most people stay in a home. When you take into account that PMI will go down, conventional looks like it costs a little more each month but saves you $15,000 to $30,000 over the first seven years.
Closing costs usually range from 2% to 6% of the loan amount, but this can vary a lot depending on where you live, who you borrow from, and what kind of loan you get. If you make $70,000 a year and buy a house for $220,000, you should expect to pay $4,400 to $13,200 in closing costs. Most buyers pay between $6,000 and $9,000.
This is what closing costs really are. The fees that lenders charge include origination fees (0.5–1% of the loan), underwriting fees ($400–800), and application fees ($300–500). The fees for third parties include the appraisal ($400–600), the credit report ($25–50), the title search ($200–400), the title insurance ($800–1,500), and the survey ($300–500 if needed). Government and escrow fees include recording fees ($50–$250), transfer taxes (which vary by location and can be 0.5% to 2% of the purchase price), property tax escrow (which is paid 2–6 months in advance), and homeowners insurance (which is paid in full the first year and costs $1,000–$2,000).
You can shop around for some costs and maybe lower them. For example, you can compare lenders on origination fees and ask about no-point or low-point options. You can shop around for title insurance and escrow services. But the fees, taxes, and prepaid items that the government charges are mostly set. The good news is that seller concessions can help. In markets that are good for buyers, you can ask the seller to pay 3–6% of your closing costs. This is becoming more common in markets that aren't moving as quickly, where sellers want to get buyers' attention.
FHA loans let sellers pay up to 6% of the purchase price toward the buyer's closing costs. This can save you a lot of money. VA loans let sellers give up to 4% of the loan amount. Depending on the size of the down payment, conventional loans usually let you borrow between 3% and 9%. Make sure to include seller concessions in your offer negotiation plan with your agent.
Your total cash needed at closing is the down payment plus the closing costs, minus any seller concessions and down payment help you've gotten. For instance, if you buy something for $220,000 with a 3.5% FHA down payment ($7,700) and pay $7,000 in closing costs, the total is $14,700. If you get $5,000 in seller concessions and $4,000 in down payment help, you only need to pay $5,700 out of your own pocket. This is why buyers who make $70,000 a year need help with their down payments and seller concessions.
The payment on the mortgage is only the start. Most first-time buyers don't realize how much it will cost them each month and each year to own a home. This can cause financial stress if you've already reached your maximum approval amount. I'll give you the real numbers.
In addition to your mortgage, interest, taxes, and insurance, you should also expect to pay for utilities (water, sewer, electricity, gas, and trash) each month. The cost of these services ranges from $200 to $400 per month, depending on the size and efficiency of your home. Basic cable and streaming services, as well as the Internet, cost an extra $80 to $150. If you have a lawn, set aside $50 to $150 a month for tools, materials, or service. If you live in a community with a HOA, you may have to pay monthly fees of $50 to $500 or more. These "extras" can quickly raise your housing costs by $400 to $800.
The bigger surprise is when you have to fix things and keep them up. Experts say that you should set aside 1–3% of your home's value each year for repairs and maintenance. If your home is worth $220,000, you should save $2,200 to $6,600 a year or $180 to $550 a month. This includes things like fixing or replacing the HVAC system (which costs $6,000–12,000 when it breaks), the roof (which costs $5,000–15,000), the water heater (which costs $1,200–2,000), fixing or replacing appliances, plumbing problems, electrical work, painting the outside of the house, cleaning the gutters, and getting rid of pests.
Many new homeowners have to pay for things in their first year that they didn't expect. Lawn tools if you don't have any ($500–$1,500 for a mower, trimmer, and basic tools). You can get window treatments for every window for between $800 and $2,500, depending on how big your home is. Small repairs and updates to make the house your own ($1,000–5,000). Cleaning the carpets or doing a deep clean after moving in ($200–$500). Changed the locks and other security measures ($200–600). A set of tools for basic home repairs costs between $300 and $800.
I learned this the hard way when I bought my first house. I had planned my budget carefully for the mortgage, but within the first six months, I had to buy a new water heater ($1,400), new window blinds ($1,100), a water softener service contract ($200 per year), and all the lawn equipment I had never needed in an apartment ($750). I wasn't ready for "surprise" costs of more than $3,500 right away.
What I would say is If you can afford a $220,000 home but can also afford a $250,000 home, buy the $220,000 home. That extra $30,000 in borrowing power means you can save about $200 a month, which you can use for maintenance. You should own your home, not the other way around. People who get into trouble are the ones who get the most money they can and then have no extra money when the air conditioner breaks down in July or the roof starts to leak. Leave some space to breathe.
Fact Checked