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.
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.
What annual salary do you need to afford a million-dollar house? To comfortably afford a home valued at $1 million, financial experts recommend an annual salary between $269,000 and $366,000.
As Madan noted, when purchasing a high-value property, a jumbo loan may be necessary. 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.
What credit score do you need to get a mortgage? Mortgage lenders typically want to see a score of 620 or better before approving a conventional mortgage. There are government-insured mortgages if your score is lower, and if your score is 760 or higher you'll qualify for the best interest rates.
With 80-90k combined income, what price house could a couple with 0-1 children, no car payments, no student debt, quiet lifestyle, afford in Southern CA? Usually between 2.5 to 4 times your yearly salary, so between $225K to $360K.
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.
If your score is under 640, you can expect an interest rate of 8% or higher. If you have only a small monthly debt ($250/mo) your purchase budget is $763,500. A modest monthly debt of $500/mo reduces your purchase budget to $737,200.
Why Wealthy Americans Own Second Homes. Most high-net-worth individuals who own second homes purchased them as vacation residences rather than as sources of rental income, the Ameriprise Financial survey found.
California had the most cities with homes valued over $1 million with 210; of the 210, three were in the Bay Area (Atherton, Los Altos Hills, Hillsborough) and one was in SoCal (Hidden Hills).
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.
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.
Putting down the standard 20% can help you avoid paying mortgage insurance and interest and could save you thousands of dollars. So you can expect to pay between $13,500 and $90,000 as a down payment on a $450,000 purchase. Keep in mind, besides the down payment amount, you will also have to factor in closing costs.
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 that these amounts only include principal and interest. In many cases, your monthly payment will also include other expenses, too.
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.
As a rule of thumb, personal finance experts often recommend adhering to the 28/36 rule, which suggests spending no more than 28% of your gross household income on housing. For someone earning $70,000 a year, or about $5,800 a month, this means a housing expense of up to $1,624.
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).
Introduction: My name is Van Hayes, I am a thankful, friendly, smiling, calm, powerful, fine, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
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