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.
To finance a 450k mortgage, you'll need to earn roughly $135,000 – $140,000 each year. We calculated the amount of money you'll need for a 450k mortgage based on a payment of 24% of your monthly income. Your monthly income should be around $11,500 in your instance. A 450k mortgage has a monthly payment of $2,769.
To comfortably afford a home valued at $1 million, financial experts recommend an annual salary between $269,000 and $366,000. This range, however, is subject to variation depending on your: Annual income. Debt-to-income ratio (DTI)
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.
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.
A $100K annual salary breaks down to about $8,333 per month. Applying the 28/36 rule, 28 percent of $8,333 equals $2,333. That's notably less than our estimated monthly home payment on a $600,000 house, $3,700, so no, you probably cannot reasonably afford a home purchase of that amount on your salary.
Using the 28% to 30% rule, your ideal maximum monthly payment shouldn't exceed $1,866 and $2,000. With that being said, if you're getting a 30-year fixed-rate mortgage with a 6% interest rate, you can likely afford a home valued up to $263,000 (including property taxes and insurance, and assuming a 5% down payment).
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.
Income Multiple: A general rule of thumb is to spend no more than 3 times your gross income on a house. Therefore, to afford a $2 million house, you would need to make at least $667,000 a year [2].
There are a ton of variables, and these are just loose guidelines. That said, if you make $200,000 a year, it means you can likely afford a home between $400,000 and $500,000.
For a million-dollar home, you'll need a stable income that shows you can comfortably afford mortgage repayments. Even though VA loans don't require a particular credit score, most lenders prefer borrowers with a score of at least 620. However, for a jumbo VA loan, lenders might require a higher score.
You can generally afford a home for between $180,000 and $250,000 (perhaps nearly $300,000) on a $50K salary. But your specific home buying budget will depend on your credit score, debt-to-income ratio, and down payment size.
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.
But until the Fed sees evidence of slowing economic growth, interest rates will stay higher for longer. The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025.
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.
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. Based on these numbers, your monthly mortgage payment would be around $2,470.
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.
The 28/36 rule holds that if you earn $60k and don't pay too much to cover your debt each month, you can afford housing expenses of $1,400 a month. Another rule of thumb suggests you could afford a home worth $180,000, or three times your salary.
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