The subject line for my blog is a common topic that lenders use for consumer blogs for search engine optimization (or “SEO” – or an entity’s efforts to draw readers to its website).

    And, here is the answer to the question: You need anywhere from $100,000 to $300,000 in income to buy a $1 million dollar home right now.

    Factors That Impact Your Mortgage Qualification

    The reason there is so much variance is because there are so many factors that impact qualification, including:

      1. Size of down payment
      2. Property tax rates
      3. Homeowners insurance rates
      4. The type of financing available (conforming, jumbo, non-QM, etc.)
      5. The interest rate environment
      6. First-time homebuyer status
      7. Monthly consumer debt payments

    Let’s look at financing types to start with. Most competitive jumbo lenders limit total debt ratios (all monthly debt payments divided by gross monthly income) to 43%, while Fannie Mae limits debt ratios to 50%. So, if you are in a “high-cost area” where Fannie Mae loan limits are in excess of $1 million, you will qualify for a $1 million home more easily than those who do not live in a “high-cost area” and will thus have to get jumbo financing instead.

    Cost Breakdown To Buy A Million Dollar Home

    So, let’s use a $1 million purchase with 10% down and an 8% interest rate as an example.

    • Purchase Price: $1,000,000
    • Down Payment: $100,000
    • Loan Amount: $900,000
    • Monthly Property Taxes: $1,250 ($15,000 per year or 1.5% rate)
    • Homeowners Insurance: $167 ($2,000 per year)
    • Private Mortgage Insurance: $225 ($2,700 per year).
    • Monthly Mortgage Payment (Principal & Interest): $6,603 (at 8%)
    • TOTAL HOUSING PAYMENT: $8,250 (rounded up)

    So, if a borrower has to get jumbo financing, her annual income would need to be about $230,000 if she has NO consumer debt payments.

    If a borrower is able to get conforming (Fannie Mae) financing, her annual income would need to be about $200,000, if she has NO consumer debt payments.

    If you throw a $500 car payment in the mix, the jumbo income requirement jumps to $244,000 and the conforming income requirement jumps to $210,000.

    In 2021, we were qualifying borrowers for $1 million homes with as little as $100,000 in income when rates were under 3% and as long as borrowers had 25% or more for a down payment.

    My broader point is that there are so many factors behind a qualification that there is never one answer when it comes to the minimum income necessary for any type of purchase.

    This is also a reminder of why it is so important for borrowers to get the assistance of a qualified lender when estimating what it will actually take to qualify.

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