Everyone dreams of buying a million-dollar home, but how realistic is it? Understanding what your financial position should look like to receive and be able to afford a million-dollar home can help you decide if doing so is a possibility. This review discusses the factors that affect your home buying potential and the additional costs associated with living in a $1 million house.
Factors that affect your home buying potential
Income is often the primary factor in determining your home buying potential. The typical rule of thumb is your monthly payment should not exceed 33 percent of your monthly income. In general, to afford a $1 million dollar house, you need between $150,000 to $500,000 per year in annual income. However, there are other factors that go into how much of a mortgage you can afford, including:
- Credit score
- Debt-to-income ratio
- Down payment
- Mortgage rate
The better your credit score, debt-to-income ratio and mortgage rate the more buying potential you have. The ability to put down a larger down payment can also increase your mortgage potential.
Calculating how much of a mortgage you can afford
The mortgage reports calculator can help you gain a tentative idea of how much of a mortgage you can afford. Of course, income, debt, down payment, and mortgage rate are the most important factors. Other factors that may affect how much you can afford include the length of the loan and additional homeownership costs such as HOA fees.
What to expect for the down payment and closing costs
The down payment is often what holds prospective buyers back from purchasing more expensive homes. Typically, larger loans (jumbo loans) require a higher percentage down payment. This typically ranges between 10 and 20 percent. This means for a $1 million home the buyer is required to put down a $100,000 to $200,000 down payment. Closing costs are typically higher with jumbo loans as well. The loan origination fee can cost upward of $8,000. Other costs may include title insurance, home insurance premium, property tax, home inspection, settlement fee, application fee, and appraisal cost.
Insurance, utilities, and property taxes
Buying a $1 million home often requires private mortgage insurance (PMI). This protects the lender in the event the buyer defaults on the loan. The insurance cost can add hundreds to the monthly loan cost. Of course, with larger homes, the utility costs are often higher as there is more of the home to heat and cool and a need for more electricity.
Should I buy a $1 million house?
If you make $150,000 or more, have good credit, a low debt-to-income ratio, and are able to make a $100,000 minimum down payment, then you may qualify to buy a $1 million house. However, it is important to consider all factors of your financial situation and speak with a real estate agent before making a final decision.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129