Per a request from an agent, here are some estimates of the income necessary to buy a $1 million home in California and a $450,000 home in Texas.
We used $1 million for California because that is close to the median home price in all too many towns and cities (and interestingly, it is much lower than high-end areas like Palo Alto, where the median list price is over $3 million and $1 million can’t buy a dog house).
We used $450,000 for Texas because you can actually find nice homes for $450,000 in TX, and because the FHA loan limit for the DFW area is only $450,800.
We made some very conservative assumptions too, so it is important to remember that the numbers below are just estimates – as rates, property taxes, consumer debt levels, and loan program requirements will vary.
We assumed that there will be no consumer debt (because we often advise paying it off and putting less down) and that all buyers will be owner-occupants; and we used very conservative (slightly above market) interest assumptions for “no points” loans to allow for some movement in rates.
Remember too that property taxes are much higher in Texas – so the California estimates won’t directly translate to Texas (slightly more income will be required to buy a $1 million home in Texas).
And finally, the income estimates are for “Household Income,” meaning that the income can come from multiple parties as long as they will all be on title.
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Income Necessary for a $1 Million Home (California)
3.5% DOWN FHA FINANCING:
$230,000 per year**
15% DOWN CONVENTIONAL FINANCING:
$200,000 per year**
20% DOWN CONVENTIONAL FINANCING:
$185,000 per year**
Income Necessary for a $450,000 Home (Texas)
3.5% DOWN FHA FINANCING:
$117,000 per year**
10% DOWN CONVENTIONAL FINANCING:
$100,000 per year**
20% DOWN CONVENTIONAL FINANCING:
$95,000 per year**
**All numbers are conservative estimates and based on the interest rate environment of mid-October 2023. If anyone is reading this blog at a later date and would like updated and/or more detailed estimates, please contact us and we will happily provide them.
It depends on many factors, including the size of your down payment, the interest rate on your mortgage and how much other debt you have. Following the 28/36 rule, you should be able to afford the monthly principal and interest payments on a home purchase of that size with a salary of about $108,000.
These loans exceed the limits set by government-sponsored entities, making them suitable for million-dollar homes. Jumbo loans often require a strong credit score, a low debt-to-income ratio, and, typically, a higher down payment.
With a $450,000 mortgage and an APR of 6%, you'd pay $3,797.36 per month for a 15-year loan and $2,697.98 for a 30-year loan. Keep in mind, these amounts only include principal and interest. In many cases, your monthly payment will also include other expenses, too.
To afford a $500,000 house, you need to make a minimum of $91,008 a year — and probably more to make sure you're not house-poor and can afford day-to-day expenses, maintenance and other debt, like student loans or car payments. One good guideline to follow is not to spend more than 28 percent of your income on housing.
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores.
With a really strong financial profile — high credit, low debts, big savings — you might afford a $1 million home with an income around $269K. But if your finances aren't quite as strong, you might need an income upwards of $366K per year to buy that million-dollar home.
If you had a down payment, you would need to make at least $400,000 a year income to afford a $2 million house. In other words, you could stretch the multiple for buying a house to 5X your household income ($400,000 X 5) in this low interest rate environment.
Using the $7,984 payment (at 7.0%) and the above assumptions, your total housing payment for a $1.5 million home with 20% down would be approximately $10,109 per month. Assuming you have no consumer debt, your monthly income requirement would be about $23,500. This is a salary requirement of about $282,000 per year.
A millionaire is somebody with a net worth of at least $1 million. It's a simple math formula based on your net worth. When what you own (your assets) minus what you owe (your liabilities) equals more than a million dollars, you're a millionaire.
One of the common financial reasons for purchasing a second home among high-net-worth individuals is that they plan to eventually move into the home full-time during retirement — the survey found that 33% of high-net-worth clients that currently own a second home plan to make it their primary residence in the future.
California had the most cities with homes valued over $1 million, totaling 210. New York had 66, while New Jersey — which experienced the largest year-over-year increase — had 49.
At a 7.00% fixed interest rate, your monthly mortgage payment on a $450,000 30-year mortgage might total $2,994 a month, while a 15-year might cost $4,045 a month.
One rule of thumb is that the cost of your home should not exceed three times your income. On a salary of $70k, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don't have a lot of other debts.
To afford a $400,000 home, assuming a 20% down payment and a 6.5% interest rate on a 30-year mortgage, you would need a gross monthly income of approximately $7,786.55. This assumes you have $1,000 in monthly debt.
What income is required for a 400k mortgage? To afford a $400,000 house, borrowers need $55,600 in cash to put 10 percent down. With a 30-year mortgage, your monthly income should be at least $8200 and your monthly payments on existing debt should not exceed $981.
If your annual salary is $100,000, the 30% rule means you should spend around $2,500 per month on your house payment. With a 10% down payment and a 6% fixed interest rate, you could likely afford a home worth around $350,000 to $400,000 (depending on the cost of taxes and home insurance).
Assuming a 30-year fixed conventional mortgage and a 20 percent down payment of $80,000, with a high 6.88 percent interest rate, borrowers must earn a minimum of $105,864 each year to afford a home priced at $400,000.
In today's climate, the income required to purchase a $500,000 home varies greatly based on personal finances, down payment amount, and interest rate. However, assuming a market rate of 7% and a 10% down payment, your household income would need to be about $128,000 to afford a $500,000 home.
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