How much income do you need to buy a 1 million house? At this price-point, lenders will pay close attention to your income, credit score, down payment, and debt-to-income (DTI) ratio.
Jumbo loans enter the picture when purchasing homes over $1 million. Jumbo loans typically have higher interest rates compared to conventional and FHA mortgages. Your lender will let you know which loan type is needed.
Borrowers interested in FHA loans need to know that the loan limit is capped at just under $500,000 in most parts of the country. Only a select number of high-cost-of-living (HCOL) areas around the country have FHA limits above $1 million for single-family homes.
Income Needed on a $1 Million Conventional Loan
If you put down the preferred 20% with a conventional loan, your mortgage on a $1 million house is $800,000 after a $200,000 down payment. You’ll also pay around $40,000 in closing costs based on the 5% average closing cost.
Let’s look at this loan with a 6% interest on a 30-year mortgage. We’re keeping housing debts at 28% here as well. (More below)
- Standard 20% down: $200,000 for a $1,000,000 house
- This brings us to an “average” monthly mortgage payment of $5,800 with property taxes and homeowners insurance factored in.
Here’s how much income you need to buy a $1,000,000 house with different debt ratios:
- $0 monthly debt payments: this $1m house would be affordable to you on a salary of $250k.
- $500 in monthly debt payments: this house could be affordable on a $270k salary.
- $1,000 in monthly debt payments: you could afford this on a salary of $290k.
The benefit of putting 20% down with a conventional $1 million mortgage is that you can opt out of escrowing your home insurance and property taxes to lower your monthly DTI ratio. Remember that property taxes on a $1 million house can be much higher than average.
Jumbo Loan for a $1 Million Home
If you’re looking at jumbo loans, your lender may require a higher down payment, lower DTI, and high cash reserves to offset the added risk of a loan this size.
A jumbo loan for a 10% down or $100,000 on a $1,000,000 loan and 7% interest rate would have monthly payments of at least $7500. This loan would require PMI.
- $0 monthly debt payments: this $1m house would be affordable to you on a salary of $325k.
- $500 in monthly debt payments: this house could be affordable on a $340k salary.
- $1,000 in monthly debt payments: you could afford this on a salary of $360k.
Income Needed on a $1 Million FHA Loan
As mentioned above, FHA loans aren’t available for most $1 million homes. If you opt to put down the minimum 3.5%, your $35,000 down payment will leave you with a $965,000 mortgage at 6% interest.
That means that your monthly mortgage payment on a $1 million home with an FHA loan would be $7,230. Here’s what you’ll need to make to afford a $1 million home in this scenario:
- $0 monthly debt payments: this $1m house would be affordable to you on a salary of $315k.
- $500 in monthly debt payments: this house could be affordable on a $330k salary.
- $1,000 in monthly debt payments: you could afford this on a salary of $350k.
The 28/36 Rule in Home Financing
Lenders use the 28/36 rule for DTI when determining eligibility. That means they want to see no more than 28% of your income going toward housing.
Housing and all other debts combined should not total more than 36% of income. Your true monthly payment will be impacted by local property taxes, homeowners insurance rates, loan term (payment length) and any HOA fees that apply.
The interest rate you get from your lender during mortgage pre-approval will also impact monthly costs. You can use our mortgage calculator to plug in specific numbers for a property if you’ve already started shopping.
