Salary to Afford a Million Dollar Home

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If you’re in the market for a new home and have been drooling over some of the offerings that cost a million dollars, you might be wondering what kind of salary to afford a million-dollar home do you need? Here are all the details to see if you can grab one of these beauties for yourself.

Salary to Afford a Million Dollar Home

Let’s take a deep dive into what kind of money you need to make to be able to buy a million-dollar home.

It’s a lot more complicated than just a straight number.

It will depend on a number of factors and your own personal financial situation.

How Much Do You Have to Make to Afford $1 Million Home?

Let’s say you have really good credit and you don’t have a lot of debt.

A mortgage lender might approve you with an annual income as low as $140,000 dollars per year.

That’s the good news, but your financial situation is going to have to be about perfect for this to work.

You’ll also need to keep in mind that you’re not going to have a lot of wiggle room financially if something goes wrong in your life, such as a job loss or medical emergency.

That means you could easily and quickly fall behind on your monthly mortgage payments.

Then you can say goodbye to your million-dollar home.

You Don’t Have Excellent Credit

Now, on the other hand, let’s say your credit is good, but not excellent, and you have some debt.

If that’s closer to your situation, then you are going to need a much higher monthly income to be approved.

Your annual salary will have to be closer to $230,000 dollars.

You can see just how important it is to have good credit and no debts.

So, let’s take a look at what else will play a part in whether or not you can buy a million-dollar home.

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Your Down Payment

When buying a home at this price range you will have to get what is called a jumbo loan. 

Typically these are 30-year fixed-rate mortgages.

You will need 20 percent for your down payment.

That means you will have to come up with $200,000 dollars.

If your down payment is lower than 20 percent, you will be required to buy private mortgage insurance.

Keep in mind, a lower down payment plus mortgage insurance will greatly increase your monthly payments.

Mortgage insurance can cost you between 0.5 and 1 percent of your loan each year.

That means for this home, you will be paying an additional five to ten thousand dollars each year.

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Your Credit Score

To be approved for a jumbo loan your credit score will need to be at least 740.

This is much higher than what you can be approved with for a traditional loan.

With a traditional loan, you can have a credit score of around 680 and still be approved.

The problem here is that there is a cap you can borrow with a traditional loan. Depending on what part of the country you are in this can be $400,000 dollars to $700,000 dollars.

If you want a traditional loan, you will need to have a much larger down payment.

So, the first thing you need to do is to check your credit score.

If it is below 700, then spend some time getting it above this number.

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Your Interest Rate 

The interest rate you receive will be determined in part on your credit score and your down payment.

The higher the down payment the better and the higher the credit score the better.

Your monthly payments can increase or decrease based on what interest rate you receive.

A 1 percent difference doesn’t sound like a lot, but it can be the difference of thousands of dollars over the life of your mortgage.

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Your Debt-To-Income Ratio

How much debt you have will have a major impact on whether or not you can get approved and what type of interest rate you will receive.

This ratio is calculated by comparing how much debt you have and how much annual income you have.

For example, if you have debt payments such as credit card debts, personal loans, student loans, and a mortgage payment of $3,500 dollars per month and your monthly salary before taxes is $7,000 dollars you would have a ratio of 50 percent.

($3,500/$7,000 = .50 percent)

Mortgage lenders will want to see a ratio of 32 percent or lower.

If you find yourself in this position, then you will need to pay off some of your debts to be approved for a 30-year mortgage.

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To Sum it All Up:

A million-dollar house is great if you have the annual household income to afford it, but keep in mind, you most likely will need to make anywhere from $140,000 dollars to $230,000 dollars per year to be able to afford it and get approved. Once approved, don’t forget about things such as your property tax and insurance as they will add additional yearly costs.

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