Breaking Down a $1 Million Mortgage
When figuring out how much income you need for a $1 million house there are a few things to take into consideration. Ultimately, you’ll want to decide what your monthly mortgage payment will amount to. Monthly mortgage payments involve a number of factors, including principal and interest (P&I), taxes, private mortgage insurance (PMI) and homeowner’s insurance.
P&I, also known as principal and interest, decides your flat mortgage payment (no insurance or taxes included). The average interest on a 30-year loan is 4.08 percent, according to Saving Advice. Given that information, your monthly mortgage payment would be $4,820.00 on a $1 million home.
That is without considering property tax on your home or any additional insurance you’ll need. The average property tax rate is about 1.21 percent, adding another $1,008.33 to your monthly mortgage payment. PMI usually cost about 1.05 percent of the entire $1 million mortgage, adding $875.00. Lastly, you’ll want to purchase homeowner’s insurance as well, which costs approximately $80.33 per month.
With all the factors added in together, your mortgage on a $1 million house would be about $6,783.66. So, how much income do you need to be able to afford a $1 million house?
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Income Needed for a $1 Million House
Most personal finance gurus say that your mortgage/housing payment should not be any more than 28 percent of your total monthly income. So, with this is mind, you can determine about how much you’ll need to make to be able to afford a $1 million house.
Your annual take home needs to be around $290K to be able to afford a $1 million house and its monthly mortgage payments comfortably. However, you don’t really need a $1 million house, do you? What about other homes?
If you take the interest rates and insurance rates above and apply them to a 30-year mortgage on smaller loans, you’ll find the income needed to afford the home is much less. Here are a few more popular home prices and the annual income needed to afford that home:*
- $250K House – Monthly mortgage $1,695.92; Annual salary $72,500.00
- $300K House – Monthly mortgage $2,035.09; Annual salary $87,000.00
- $400K House – Monthly mortgage $2,713.46; Annual salary $116,000.00
- $500K House – Monthly mortgage $3,391.83; Annual salary $145,000
* Each of these figures is estimated with the assumption that each individual is taking out a 30-year mortgage.
Whether you’re planning on buying a home in the present, near or even far future it is always good to know what you can afford with your present salary. The information above is a great starting point but you can also check out this great article outlining how much you need to make to be able to afford a $1 million house.
Have you bought a home? How did you decide whether or not you could afford the purchase?
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