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Getting an $800,000 mortgage is no small feat. That kind of loan requires a substantial income to qualify and pay back comfortably. So how much income do you really need to afford an $800k mortgage? Let’s break it down
Income Requirements for an $800k Mortgage
Most mortgage lenders want to see that your total monthly debts, including the new mortgage payment, take up no more than 43% of your gross monthly income. They also typically require a minimum down payment of 20% for a jumbo loan over $647,200 (in most areas).
With those requirements in mind here’s a rough estimate of the income you’d need
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Down payment of 20% on an $800k home is $160,000 That leaves a mortgage amount of $640,000
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With a 30-year fixed rate around 5%, the monthly principal and interest payment would be around $3,400.
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Add in estimated property taxes of 1.25% ($833/month) and insurance of 0.5% ($333/month).
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Total estimated monthly payment is $4,566.
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To keep that payment under 43% of your gross monthly income, you’d need an income of at least $10,600 per month or $127,200 per year.
This is just a general estimate. The actual income you’d need can vary based on your specific situation, including:
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Down payment amount – The more you put down, the smaller your mortgage and monthly payments.
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Interest rate – Lower rates mean lower payments and may allow you to qualify with less income.
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Other debts – Car loans, student loans, credit cards, etc. factor into your debt-to-income ratio.
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Location – Home prices and property tax rates differ across the country.
Other Factors Lenders Consider
While debt-to-income ratio is important, lenders look at a full range of factors when approving mortgages:
Credit score – Most jumbo loans require a minimum score around 700. The higher your score, the better your chances.
Down payment amount – While 20% down is recommended, some jumbos allow less. A larger down payment signals you’re financially ready.
Cash reserves – Lenders often want to see 6-12 months of mortgage payments available in your accounts. More reserves help offset a lower income.
Employment history – Steady income from consistent employment makes you look reliable. Gaps in work history could be red flags.
Assets – Lenders look beyond income to your savings, investments, retirement accounts, and real estate. Large assets improve your case.
Other debts – Lenders will scrutinize your credit report and total monthly debts. Too much existing debt weakens your application.
Property type – Primary residences are preferable to investment properties. Vacation homes may require a higher down payment.
Loan type – Fixed-rate mortgages are better than adjustable-rate options with fluctuating payments.
How Much House Can You Really Afford?
Qualifying for an $800,000 mortgage doesn’t necessarily mean you can afford the monthly payments comfortably. As a general rule, total housing expenses including mortgage, insurance, taxes and maintenance should take up no more than 28% of your gross monthly income.
On a $127k annual income, 28% is around $3,000 per month. So while you may qualify for a $4,566 monthly mortgage payment, that doesn’t leave much room in your budget for other costs of home ownership, regular bills, discretionary spending, and savings.
Before committing to a jumbo mortgage, take an honest look at your overall financial situation. Make sure you have enough income not just to qualify, but to live comfortably after accounting for the mortgage, homeowners costs, and other financial goals.
Work with a Mortgage Professional
An experienced loan officer understands all the intricacies of jumbo mortgage qualification. They can assess your specific financial profile and provide personalized guidance on both qualifying and affording an $800k mortgage.
Rather than trying to puzzle it out yourself, work with a professional from the start. Let them help assess what price range you can realistically afford based on your income, debts, assets, credit, and lifestyle. They can also advise you on steps to improve your mortgage readiness if needed.
While the income requirements may seem daunting, purchasing an $800,000 home is feasible for many buyers in the right financial circumstances. With prudent preparation and guidance from an expert, you can make your dream home a reality.
Where to look for an $800,000 home
With an $800,000 budget, you’ll have wide choices in most markets. But keep in mind that any amount of money can go further in some places than others. For example, $800,000 might buy a spacious home on a lot of land in most areas, but only a modest condo in an expensive city like New York or San Francisco. Hawaii and California both have median prices of around $800K, according to recent Redfin data, as do desirable cities like Boston ($760,000) and Seattle ($810,000).
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In just about any market in the country, those who can afford a homebuying budget of $800,000 are likely to find many enticing possibilities. The nationwide median sale price as of August 2023 was $407,100, per the National Association of Realtors, so this level of financial flexibility places you well above what most buyers pay. However, whether you can manage the financial burden of such a pricey purchase will depend on several factors, such as your earnings, how much down payment you can make and the interest rate on your mortgage loan.
Bankrate’s mortgage calculator can help you work out the income needed to afford an $800K house. Let’s assume you provide a 20 percent down payment ($160,000) on a 30-year fixed-rate loan with a 7.0 percent interest rate — that would make your monthly principal and interest payment $4,257. Additional expenses like property taxes, home insurance and homeowners association fees (if applicable) will increase this, so let’s bump up the total to about $4,800 per month. That equates to $57,600 spent on housing every year.
One frequently used guideline for housing affordability suggests that you shouldn’t spend more than 28 percent of your total income on housing-related expenses. The $57,600 figure above is about 28 percent of $207,000, so that would be around the income you’d need for an $800K house purchase. (Remember, though, that this calculation doesn’t include the upfront money required for a down payment and closing costs, or the expense of ongoing maintenance and upkeep.)
Can you afford an $800,000 House
FAQ
How much income to afford an 800k mortgage?
How much income do I need for a 750k mortgage?
How much salary to afford a 900k house?
What credit score is needed to buy an 800k house?
You generally need a credit score of at least 620 to qualify for a conventional mortgage, though every lender is different.Nov 27, 2024