How Much Do You Have to Make to Afford a $1.5 Million House?

Buying a $1.5 million house is a significant financial undertaking, extending beyond the advertised purchase price. While many focus on the monthly mortgage payment, this is only one component of the overall financial commitment. Understanding the full scope of expenses and financial requirements, including income, existing debts, and ongoing costs, is paramount to determine if a $1.5 million residence aligns with your financial capacity.

Determining the Baseline Income Need

Lenders use the 28/36 rule to assess a borrower’s capacity for homeownership. This guideline suggests monthly housing costs, including principal, interest, property taxes, and insurance, should not exceed 28% of your gross monthly income. Additionally, your total monthly debt payments, encompassing housing and other obligations like car loans or credit card debt, should remain below 36% of your gross monthly income.

For a hypothetical $1.5 million home with a 20% down payment, the loan amount would be $1.2 million. With an average 30-year fixed mortgage interest rate around 6.6% as of August 2025, the principal and interest portion of the monthly payment would be approximately $7,666. To adhere to the 28% housing ratio, a gross monthly income of about $27,380 is needed for just the principal and interest, translating to approximately $328,560 annually.

Key Financial Variables Impacting Affordability

The size of your down payment significantly impacts the loan amount and monthly mortgage payment. A larger down payment reduces the principal loan, lowering monthly principal and interest payments. Less than a 20% down payment typically requires private mortgage insurance (PMI), an additional monthly expense. For a $1.5 million home, a 10% down payment means a $1.35 million loan, substantially increasing the monthly payment and adding PMI costs.

Prevailing interest rates profoundly affect the total cost of borrowing and required income. Even small fluctuations can lead to substantial differences in monthly payments over a 30-year mortgage. For instance, a half-percentage point increase on a $1.2 million loan can add hundreds of dollars to the monthly payment, directly impacting the income needed to qualify.

Property taxes are a substantial ongoing cost, varying by location from 0.3% to over 2% of the home’s value annually. For a $1.5 million property, a 1.2% rate equates to $18,000 per year, or $1,500 monthly, factored into housing costs. Homeowner’s insurance is another mandatory expense, with annual costs ranging from $4,000 to $6,000 for a high-value property, adding several hundred dollars monthly.

Additional monthly housing expenses include Homeowners Association (HOA) fees, common in higher-value properties or planned communities. These fees can range from a few hundred to over a thousand dollars monthly, covering community amenities and maintenance. Some areas may also have special assessments like Mello-Roos, additional taxes for public improvements in newly developed districts.

Existing debt obligations, such as car loans, student loans, or credit card balances, reduce the income available for housing within the 36% debt-to-income (DTI) ratio. Lenders evaluate your total debt burden to ensure sufficient disposable income. A higher level of existing debt means a lower allowable housing payment for the same gross income. A strong credit score is also important for securing favorable interest rates and loan terms, as lenders typically reserve their best rates for borrowers with scores of 700 or higher.

Understanding Mortgage Loan Structures

The choice of mortgage loan structure significantly influences the monthly payment and income needed. A 30-year fixed-rate mortgage offers lower monthly payments than a 15-year term, making it more accessible from an income perspective. A 15-year mortgage, however, allows for substantial savings on total interest paid over the loan’s life, despite requiring a higher monthly outlay.

Fixed-rate mortgages provide payment stability, as the interest rate remains constant, offering predictability in monthly housing costs. Adjustable-rate mortgages (ARMs) typically offer lower initial interest rates, reducing the immediate income requirement. However, ARM rates adjust after an initial fixed period, introducing potential for future payment increases that could strain a borrower’s budget.

A $1.5 million home purchase often requires a jumbo loan, as it typically exceeds conforming loan limits set by federal housing finance agencies. For 2025, the baseline conforming loan limit for a single-family home in most areas is $806,500, with higher limits up to $1,209,750 in designated high-cost regions. Jumbo loans are not backed by government-sponsored enterprises, leading to stricter qualification criteria.

Lenders offering jumbo loans often require higher credit scores, frequently 700 or above, larger down payments (commonly 20% to 30% or higher), and substantial cash reserves. Borrowers may need to demonstrate six to twelve months of mortgage payments in liquid assets after closing. These requirements reflect the increased risk lenders undertake with larger loan amounts.

Comprehensive Personal Financial Assessment

Before engaging with lenders, conduct a thorough personal financial assessment to understand your true affordability. Gather all pertinent financial documents, including recent pay stubs, the past two years of tax returns, bank statements, and statements for existing debts like credit cards, student loans, and auto loans. Investment account statements may also be necessary to verify assets and reserves.

Next, calculate your debt-to-income (DTI) ratio. Total your gross monthly income and all monthly debt payments, then divide total monthly debt by gross monthly income. For instance, if your gross monthly income is $30,000 and total monthly debt payments are $10,000, your DTI would be approximately 33%. Lenders use this ratio to determine borrowing capacity, generally preferring a DTI of 36% or lower.

Lenders also consider other aspects of your financial profile, such as employment history stability and verification of assets. Cash reserves in checking, savings, and investment accounts demonstrate your ability to cover unexpected costs or reduced income periods.

Seeking mortgage pre-approval is a practical step. Pre-approval, distinct from pre-qualification, involves a rigorous examination of your credit and finances, resulting in a conditional commitment from the lender. This process clarifies your actual borrowing power and signals to sellers that you are a serious, qualified buyer.

Beyond the Monthly Mortgage Payment

Purchasing a $1.5 million home involves significant additional costs beyond the principal, interest, property taxes, and insurance (PITI). Closing costs are a substantial upfront expense, typically ranging from 2% to 5% of the loan amount or purchase price. For a $1.5 million house, these costs could be $30,000 to $75,000, covering fees for loan origination, appraisal, title insurance, legal services, and recording the transaction.

Moving expenses can accumulate quickly, especially for a larger property. Initial home setup and contingency funds are often needed for immediate repairs, necessary upgrades, or furnishing a larger space.

Ongoing maintenance and repair costs are higher for larger, more expensive homes. Experts suggest budgeting 1% to 4% of the home’s value annually for maintenance, translating to $15,000 to $60,000 per year for a $1.5 million property. This fund covers routine upkeep like landscaping, pool maintenance, general repairs, and potential major system replacements such as HVAC units or roofing.

Increased utility costs are another expense associated with larger homes. Heating, cooling, and powering a more expansive property typically results in higher electricity, gas, and water bills. A larger home generally consumes more energy and water, adding to the ongoing financial commitment of homeownership.