Expect to need at least $100K of income for a million–dollar home

There’s no magic formula that says you need X income to afford a $1 million house. Because income is just part of the equation.

With a really strong financial profile – high credit, low debts, big savings – you might afford a $1 million home with an income around $100K.

But if your finances aren’t quite as strong, you might need an income upwards of $225K per year to buy that million–dollar home.

Wondering how much house you can afford? Here’s how you can find out.

Verify your home buying budget. Start here (Feb 18th, 2022)


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Household income to afford a million–dollar home

There’s no “magic” income number to afford a million dollar house.

In reality, it’s possible to buy a $1million home with a variety of income levels. That’s because your home–buying budget depends on other factors, too, like your down payment, debt–to–income ratio, and mortgage rate.

Take a look at the table below for a quick overview of how these factors, combined with your salary, can affect your million dollar home purchase:

Annual salary Down Payment Monthly debt Interest Rate* Monthly payment
$147,000 20% ≤ $250 2.75% $4,100
$224,000 20% ≤ $2,500 2.75% $4,220
$224,000 20% ≤ $2,500 3.00% $4,252
$110,000 50% ≤ $250 2.75% $2,900

*Estimates based on 30-year fixed-rate loan, property tax rate at 0.97% annually, home insurance premium of $600 per year, and no HOA dues. Interest rates are for examples purposes only. Your own interest rate will be different.

A million dollars was once a lot of money to pay for a home, and unless you lived in Los Angeles or San Francisco, you probably would never consider purchasing one.

But as home values continue to skyrocket across the country, million–dollar homes are becoming more common outside of California and New York. The good news is that you don’t need to be a millionaire to afford one. But you should have your personal finances in order to ensure you get the best rate.

Verify your home buying budget. Start here (Feb 18th, 2022)

Examples: How much you have to make to afford a million–dollar home

Monthly income is just one factor in your home buying budget. The purchase price you can afford also depends on your:

  • Debt–to–income ratio (DTI)
  • Credit score
  • Down payment amount
  • Mortgage rate

We experimented with a few of these factors using our home affordability calculator to show you how much each one can affect your budget.

Prime borrower: $147,000 income needed

Our first example looks at a traditional ‘prime’ borrower (one with excellent credit and strong finances). They have:

  • A 20% down payment ($200,000)
  • Only $250 in pre–existing monthly debts
  • An excellent mortgage rate of 2.75%

This borrower can afford a $1 million dollar house with an annual salary of $147,000. Their monthly mortgage payment would be about $4,100.

Loan summary:

  • Purchase price: $1 million
  • Down payment: $500,000
  • Loan amount: $500,000
  • Loan term: 30 years

Monthly mortgage payment breakdown:

  • Principle and interest: $3,266
  • Monthly tax: $808
  • Monthly insurance: $50
  • Total: $4,124

High–DTI borrower: $224,000 income needed

Let’s leave everything else the same as in the first example, but increase the borrower’s monthly debt payments to $2,500.

For those paying multiple child support and alimony payments, that might be more realistic, even if their debts are only average.

And others have that level of debt payment even without family commitments. Think luxury car, boat, motorhome, and other big–ticket toys.

In this scenario, the income needed to afford a home costing $1.031 million would be $224,000.

To afford a million–dollar dream home, you’d need a slightly higher down payment of $214,000. And monthly payments would cost about $4,220.

Clearly, existing total debt makes a big difference in home affordability. Your salary needs to be $77,000 higher to buy a home at the same price point.

Lower credit borrower: $224,000 income needed

As a rule of thumb, a million–dollar purchase price will require a jumbo loan.

To get a jumbo loan, you typically need a credit score of 700 or higher. But let’s say a borrower has a credit score on the lower end of the approvable range.

A lower credit score means they’ll have to pay a higher interest rate than our earlier examples. We’ll say 3.0% instead of the 2.75% used earlier.

Loan summary

  • Purchase price: $1,005,000*
  • Down payment: $201,000
  • Loan amount: $804,000
  • Loan term: 30 years

Monthly payment breakdown

  • Principle and interest: $3,390
  • Monthly tax: $812
  • Monthly insurance: $50
  • Total: $4,252

That same $224,000 household income will still buy a $1 million home, though the budget comes in at one at $1,005,000 rather than $1,031,000 – a full $25,000 lower. And that’s still assuming $2,500 in monthly debt payments.

Let’s say you can afford a 50% down payment. Perhaps you’ve built up lots of equity as a long–standing homeowner. Or maybe you’ve had a windfall.

Chances are, in your happy financial position, you’ve paid down most of your total debt, so we’ll return that number to $250 in monthly debt repayment.

Loan summary

  • Purchase price: $1 million
  • Down payment: $500,000
  • Loan amount: $500,000
  • Loan term: 30 years

Monthly payment breakdown

  • Principle and interest: $2,041
  • Monthly tax: $808
  • Monthly insurance: $50
  • Total: $2,900

By putting down half the purchase price ($500,000) you can afford a $1 million home on an income of just $110,000.

Even putting down 30% makes a big difference compared to 20%.

With 30% down, you could potentially afford a $1,037,000 home on an income of $140,000. Compare that with needing an income near $150,000 if you put down only 20%.

Check your luxury home loan options. Start here (Feb 18th, 2022)

How to calculate your home buying budget

The best way to figure out your home buying budget – short of contacting a lender – is to use a mortgage calculator.

This mortgage calculator will help you figure out how much house you can afford based on your salary, down payment, and debts. It also accounts for other factors, like your mortgage interest rate and estimated property taxes and homeowners insurance costs.

To get the best estimate, be as accurate as you can when filling out each field.

  • Annual income: Your gross income from all sources before tax
  • State: Your location can affect the deal you’ll get. And it will also impact your property taxes
  • Monthly debts: Minimum credit card payments, loan installments, car loans, student loans, plus alimony and child support. In other words, all your inescapable, monthly financial obligations. But not things that vary, such as food, gas, utilities, and so on
  • Loan term: Are you using a 30–year fixed–rate mortgage loan or a 15–year fixed–rate loan? This will have a big impact on how much house you can afford
  • Interest rate: You won’t know your mortgage rate for sure until you get loan estimates from multiple lenders. The default shown on our calculator is an average rate on the day you visit; yours will be higher or lower, depending mainly on your credit, down payment, and debt burden. So adjust as best you can
  • Down payment: Your down payment affects your interest rate as well as your overall home–buying budget. Assume you’ll need at least 20% of the purchase price to get approved for such a big loan
  • Other homeownership costs: Estimate your future homeowners insurance premiums and property taxes. The numbers in the calculator are state averages. And add in monthly homeowners association dues, if you’re buying in an HOA’s area, or private mortgage insurance payments (PMI), if you’re putting less than 20% down on a conventional loan

Remember, a calculator can only give you an estimate. To know whether you can really afford a 1–2 million dollar home, you’ll need to get preapproved by a mortgage lender.

Preapproval means the lender has verified your credit, income, savings, and other items on your application.

If you have a preapproval letter in hand stating you can afford a million–dollar home, then it’s more or less a sure thing. (Unless any of your financials or mortgage rates change substantially prior to purchase.)

Start your mortgage preapproval. Start here (Feb 18th, 2022)

Don’t forget about homeownership costs

So far, we’ve only looked at the purchase price for a million–dollar house.

We’ve explored the principal (repaying the sum you borrowed) and interest on your mortgage. And we’ve taken into account your likely property taxes and homeowners insurance.

But there are plenty of other costs associated with owning a home – especially with high–value real estate. And you’ll need to budget for these as well.

  • Closing costs: 2%–5% of loan amount
  • Property taxes: about 1% of home value
  • Homeowners insurance: $100–$200 per month
  • Utilities: average of $1–$2 per square foot
  • Maintenance: variable cost

Closing costs

People often think about their home buying budget in terms of down payment. For a $1 million home, you’re likely to need a minimum of $100,000 to $200,000 saved for that purpose.

But a down payment isn’t the only thing to save for. Home buyers have to consider closing costs on their home purchase, too.

Closing fees typically start around 2% of the buyer’s loan amount.

So if you’re borrowing $800,000 to buy a million–dollar house, your closing costs could be around $16,000 or more. You’ll need to factor this number in when thinking about how far your savings will stretch.

Property taxes

Home buyers also need to consider their future property taxes.

Real estate tax rates are set by local tax authorities, and they vary a lot depending on where you live. But to give you a ballpark estimate, the average national property tax rate is around 1% according to the Tax Foundation.

That means on a $1 million house, there’s a good chance you could pay around $10,000 per year in property taxes. That’s over $800 per month.

Research property tax rates where you plan to buy and make sure you factor this cost into your budget for ongoing housing costs.

Homeowners insurance

Homeowners insurance is likely to be more expensive on a larger home, too. The typical homeowner might spend $50 to $75 per month to insure a standard home.

But a larger home costs more to replace if it is destroyed by fire or another disaster. Naturally, the insurance company will charge more for greater risk.

Expect to pay $100 to $200 per month to insure your million–dollar home.

All in, you could pay $1,000 per month in taxes and insurance, a sizeable bill above and beyond the principal and interest payment.

Running costs, repairs, renovations and maintenance

The bigger your home, the more it costs to run. The larger square footage and perhaps higher ceilings that you loved, mean you have a larger volume to heat and cool. So your utility and HVAC servicing bills are going to be a lot higher.

While utility costs vary by location, as a rule of thumb, you can estimate on paying between $1–2 per square foot.

A bigger home also means more to clean and maintain – and often comes with a yard that will require upkeep.

In short, keeping a large, expensive home well maintained isn’t cheap. And neither are renovations and repairs. So plan ahead and make sure your home buying budget leaves you with a sizeable cushion in your savings account.

Benefits of buying a $1M house

Your ongoing costs may be higher with a bigger home. But the benefits to your net worth should typically be greater, too.

Indeed, home price appreciation averaged 15% throughout 2021 according to CoreLogic.

That means if your home was worth $500,000 in 2020, it was likely worth $575,000 or more at the end of 2021 – netting you a $75,000 home equity gain.

And for a million–dollar home? Prices were up by nearly $150,000 year–over–year on average. So you’re likely to see a nice return on the money you invest in your house.

Of course, all this relies on home prices continuing to rise. And we all know that they very occasionally fall.

But take a look at this graph from the Federal Reserve Bank of St. Louis:

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development data via St. Louis Fed

You can see how rare it is for home values to decrease – and how strong the overall upward trend is.

You might think real estate is not a bad place to have $1 million invested.

What are today’s mortgage rates?

There’s one other trend prospective home buyers should pay attention to, and that’s mortgage rates.

Low mortgage rates boost affordability. But when rates rise, it can be harder to afford a home at the high end of your budget.

So it’s worth looking into financing sooner rather than later if you’re serious about buying a $1 million home. And do all you can to shore up your credit score and savings before applying.

Show me today’s rates (Feb 18th, 2022)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.



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