What income do I need to afford a $700,000 house?

No more than 28% of your total monthly income should go toward your monthly costs.

Is your dream home priced at $700,000? That is significantly higher than the National Association of Realtors’ median price for a home in July 2023, which was $406,700. Your ability to afford such an expensive purchase will be determined by a number of factors, including your salary and the interest rate on your mortgage.

To figure out how much you need to make to afford a $700,000 home, use Bankrate’s mortgage calculator:

• Assuming a 30-year fixed mortgage with a 20% down payment of $140,000 and a 6.5 percent interest rate, your monthly principal and interest payment would be $3,539. That’s more than $42,000 in principal and interest per year.
• To account for property taxes, homeowners insurance, and potential HOA fees, round that monthly figure up to around $4,200. That brings your annual housing bill to $50,400.
• Apply the general rule that you should not spend more than one-third of your income on housing. The $50,400 figure multiplied by three equals $151,200 — the minimum salary required to afford this home purchase.

To repeat, these figures will vary greatly depending on variables such as your homeowners insurance premium and local property taxes. If you get a lower mortgage rate, your monthly payment will be lower; if you get a higher mortgage rate, your payment will be higher; and your payment will be higher if you put down less than 20%. Here’s a more in-depth look at how much income you’d need to afford a $700,000 home.

Earnings required to purchase a $700,000 home

When determining what salary is required for a $700,000 home purchase, the 28/36 rule is a good starting point. According to this real estate rule of thumb, no more than 28 percent of your total monthly income should go toward monthly housing costs, and no more than 36 percent should go toward overall debt payments (including housing).

Here’s how the rule works for the above-mentioned annual income of $151,200. Dividing a monthly amount by 12 yields $12,600, and 28 percent of $12,600 yields $3,528 — almost exactly the monthly principal and interest figure determined above. However, don’t forget to account for variable monthly fees that are rolled into your housing payment, such as property taxes and insurance premiums.

Keep the 36th part of the equation in mind as you run the numbers. Other monthly debts, such as car payments, credit card balances, or student loans, can add up, and you don’t want to stretch your budget too thin by going above the 36 percent mark. There are also ongoing homeownership costs to consider, such as maintenance and upkeep.

Furthermore, keep in mind that a $700,000 budget will get you quite far in most areas of the country. The median sale price in many major cities, including Washington D.C. ($617,000), Denver ($587,000), Miami ($580,000), Phoenix ($436,824), and Atlanta ($385,000), is much lower, according to Redfin data from July 2023. Just because you can afford $700,000 does not mean you need (or should).

What factors influence how much money you can afford?

Aside from the property’s asking price, there are numerous factors to consider when determining how much home you can afford. Among the most important are:

• Down payment: The larger your down payment on a house, the less money you need to borrow, and thus the lower your monthly mortgage payments. This is especially true for more expensive homes: A 20% down payment on a $700,000 home means you won’t have to pay back $140,000 in interest.
• Loan-to-value ratio (LTV): Your down payment will also determine your LTV. This figure represents how much of the total value of the home you are borrowing.
• Mortgage rate: Higher rates mean paying more interest. Even a single percentage point makes a significant difference: The above-mentioned $3,539 monthly payment for a 6.5 percent interest rate becomes $3,915 at 7.5 percent. That works out to $4,512 per year, or more than $135,000 over the course of a 30-year loan.
• Credit score: Having a higher credit score increases your chances of getting a lower mortgage rate.
• Debt-to-income ratio (DTI): DTI is calculated by comparing your gross monthly income to your monthly debt obligations. The higher your DTI, the more risky you will be considered by lenders.
• Financing: Do your homework and shop around for the various types of financing that you may be eligible for before committing to a mortgage loan. Many states and municipalities also provide down payment assistance and other programs to make homeownership more accessible, particularly to first-time buyers. Because of your high salary, you may not qualify, but it’s worth looking into just in case.

Stick with it until the end.

When you enter into a home purchase contract, it can take weeks or even months before you sit down at the closing table. In the meantime, keep an eye on the factors listed above. For example, do not apply for new credit cards or make purchases that require financing, such as a car, because these will have an impact on your credit score. And, if at all possible, avoid major life changes that could have an impact on your financial situation, such as starting a new job.

Working with a knowledgeable local real estate agent is invaluable for most buyers. Interview a few people to find someone who is a good fit for you. An agent will be able to professionally guide you through the entire homebuying process.

FAQs

Can I afford a $700,000 home on a $200,000 salary?

Yes, most likely. On a $700,000 home, you’ll pay about $4,200 per month in housing costs assuming a 20% down payment on a 30-year fixed-rate mortgage with a 6.5 percent interest rate. The 28/36 rule states that you should spend no more than 28 percent of your income on housing. 28 percent of a $200,000 salary is $4,666 per month, which is more than enough to cover the $4,200 monthly cost. Just be sure to factor in your other debts and expenses to avoid stretching yourself too thin.

What factors influence the amount of house I can afford?

The price of a home you can afford is determined largely by your income, credit score, and current mortgage interest rates. Location is also important, as the same housing budget can stretch much further in some areas than others. You should also consider the cost of living in your desired area, as well as the ongoing maintenance costs of homeownership.