How Much Do I Need to Make to Buy a Million Dollar House?

Purchasing a million-dollar house requires understanding various financial commitments beyond the purchase price. Prospective homeowners must consider initial costs, ongoing expenses, and their existing financial health. Evaluating these factors ensures long-term financial stability and comfortable living in a high-value property. Planning and budgeting are essential for owning such an asset.

Calculating the Income Needed

Determining the income needed for a million-dollar home involves understanding how mortgage lenders assess affordability. Lenders use debt-to-income (DTI) ratios, comparing a borrower’s total monthly debt payments to their gross monthly income. The 28/36 rule is a common guideline: the “front-end” ratio (housing costs only) should not exceed 28% of gross income, and the “back-end” ratio (housing costs plus all other recurring debts) should not exceed 36%. Lenders prefer a DTI ratio of 36% or less for optimal qualification, though some may approve higher ratios with compensating factors like substantial savings.

For example, a million-dollar home with a 20% down payment leaves an $800,000 mortgage. Assuming a 30-year fixed mortgage interest rate of approximately 6.63% to 6.70% as of August 2025, the principal and interest payment would be substantial. Property taxes and homeowner’s insurance are also factored into the DTI calculation. Property taxes on a million-dollar home vary by location, ranging from $8,500 to $19,000 annually, while homeowners insurance averages around $7,412 per year for a $1 million dwelling.

If annual property tax is $15,000 ($1,250 monthly) and homeowner’s insurance is $7,412 ($618 monthly), these are added to the principal and interest payment. For an $800,000 mortgage at 6.63%, the monthly principal and interest is $5,120. This results in a total monthly housing cost (PITI) of $6,988 ($5,120 + $1,250 + $618). To meet the 28% front-end DTI rule with this housing cost, a borrower needs a gross monthly income of about $24,957, or an annual income of $299,484. The 36% back-end DTI rule then accounts for additional debts, meaning total monthly debt payments, including housing, must not exceed 36% of gross monthly income.

Understanding Upfront Costs

Beyond income for mortgage qualification, purchasing a million-dollar home requires upfront cash outlays before the transaction finalizes. The largest is the down payment, which is typically 20% or more for high-value homes to avoid private mortgage insurance (PMI). On a $1,000,000 home, a 20% down payment is $200,000. This commitment reduces the mortgage amount and monthly principal and interest payments.

Buyers are also responsible for closing costs, fees incurred to complete the real estate transaction. These costs range from 2% to 5% of the home’s purchase price or loan amount. For a million-dollar property, this means an additional $20,000 to $50,000 in upfront expenses. Closing costs include loan origination fees, which are lender charges for processing the mortgage, ranging from 0.5% to 1.5% of the loan amount.

Other common closing costs include appraisal fees, which ensure the home’s value supports the loan amount, and title insurance, which protects both the buyer and lender. Attorney fees may also apply, depending on local practices, along with recording fees. Prepaid expenses, such as several months of property taxes and the first year’s homeowner’s insurance premium, are also collected at closing and placed into an escrow account. These upfront costs represent a financial hurdle separate from ongoing income requirements.

Assessing Ongoing Homeownership Expenses

Owning a million-dollar home involves recurring expenses beyond the monthly mortgage payment. Property taxes are a large portion of these costs, levied based on the home’s assessed value and varying by location. While the national median property tax was $3,500 in 2024, a million-dollar home incurs higher amounts, thousands of dollars monthly, depending on local tax rates. These taxes fund local services and can be reassessed annually, leading to fluctuations in the monthly payment.

Homeowner’s insurance is another recurring expense, especially for high-value properties. The average annual cost to insure a $1 million dwelling is around $7,412, varying by location, home features, and coverage. Properties in areas prone to natural disasters or with unique characteristics may face higher premiums. Utility costs, including electricity, gas, water, and internet, also contribute to the monthly budget and can be higher for larger homes.

Maintenance and repairs are a crucial ongoing expense. Set aside 1% to 4% of the home’s purchase price annually for these purposes. For a million-dollar home, this is $10,000 to $40,000 annually, or $833 to $3,333 per month, for routine upkeep and unexpected repairs. This helps address issues like HVAC servicing, roof repairs, or appliance replacements, preserving the home’s value. Homeowners Association (HOA) fees are also a recurring cost if the property is part of a managed community, adding another fixed monthly expense.

Impact of Debt and Credit Score

A borrower’s existing financial obligations and credit history influence their ability to secure a mortgage for a high-value home. Debts like car loans, student loans, and credit card balances directly affect the debt-to-income (DTI) ratio, which lenders use to gauge repayment capacity. A high DTI from pre-existing liabilities can reduce the maximum mortgage amount, as lenders want to ensure the borrower is not overextended. Even if the housing DTI is acceptable, a high back-end DTI (including all other debts) can lead to loan denial or less favorable terms.

A borrower’s credit score is crucial, reflecting creditworthiness and payment history. A strong FICO score, 740 or higher, is required to secure the most favorable interest rates and loan terms. A lower credit score results in a higher interest rate, leading to a larger monthly mortgage payment over the life of an $800,000 or more loan. Even a small interest rate increase can add tens of thousands of dollars to the total cost of borrowing over 30 years.

A history of late payments, bankruptcies, or foreclosures can impact loan approval, regardless of income. Lenders see such histories as higher risk, which can lead to denial or require a larger down payment and higher interest rates if approved. Managing existing debt responsibly and maintaining an excellent credit score are fundamental steps toward qualifying for a million-dollar home, as these factors directly impact eligibility and financing cost.