How Much Do You Need to Afford a $400,000 House?

Buying a home is a significant financial undertaking. The sticker price of a $400,000 house is only a portion of the total cost of homeownership. Various financial factors contribute to the overall affordability, extending beyond the initial purchase price. Prospective homebuyers benefit from a comprehensive understanding of these components to prepare for homeownership.

Upfront Financial Commitments

Securing a home requires various cash outlays before receiving the keys. These upfront financial commitments include the down payment, closing costs, and cash reserves. Each component contributes to the initial capital needed for a home purchase.

The down payment is the initial sum paid towards the home’s purchase price. For a $400,000 house, the amount varies based on loan type and borrower qualifications. Conventional loans require a minimum down payment of 3% to 5% for first-time homebuyers, translating to $12,000 to $20,000. The median down payment for all homebuyers is 15%, while first-time buyers put down 9%.

Government-backed loans offer different down payment structures. FHA loans allow a minimum down payment of 3.5% with a credit score of 580 or higher, which is $14,000 for a $400,000 home. VA loans, available to eligible service members and veterans, require no down payment. A larger down payment, particularly 20% or more, leads to a lower monthly mortgage payment and helps avoid Private Mortgage Insurance (PMI) on conventional loans.

Closing costs are additional fees paid at the close of a real estate transaction. These costs range from 2% to 5% of the total loan amount. For a $400,000 home with a $320,000 loan, closing costs range from $6,400 to $16,000. Common components include loan origination fees (0.5% to 1% of the loan), appraisal fees ($500 to over $1,000), title insurance (0.5% to 1% of the mortgage amount), attorney fees, and recording fees.

Prepaid expenses are also part of closing costs, covering property taxes and homeowner’s insurance premiums for the first few months. Lenders require these funds to be placed into an escrow account at closing. This payment ensures future property taxes and insurance premiums can be paid on time by the lender. It is advisable to have cash reserves available after closing to cover unexpected repairs or initial home expenses.

Understanding Your Monthly Housing Costs

Beyond upfront expenses, homeownership involves recurring monthly costs that impact affordability. These ongoing expenses include principal and interest, property taxes, homeowner’s insurance, and potentially private mortgage insurance and homeowner’s association fees. Understanding each component is important for managing a household budget.

The principal and interest (P&I) payment is the largest portion of a monthly mortgage payment. This amount repays the borrowed loan and accrued interest. For a $400,000 home with a 20% down payment, the loan amount is $320,000. As of August 24, 2025, a 30-year fixed-rate mortgage averages 6.63%, while a 15-year fixed-rate mortgage averages 5.84%. A $320,000 loan at 6.63% over 30 years results in a monthly P&I payment of $2,049. If financed over 15 years at 5.84%, the monthly P&I payment is $2,660.

Property taxes are levied by local government authorities based on the home’s assessed value and contribute to funding public services. The amount of property tax varies by location. For illustrative purposes, 1.5% of a $400,000 home value equates to $6,000 per year, or $500 per month. These taxes are collected by the lender as part of the monthly mortgage payment and held in an escrow account.

Homeowner’s insurance protects the property against damage and provides liability coverage. The average annual cost for homeowner’s insurance on a $400,000 house ranges from $3,186 to $3,278 per year, translating to $267 to $273 per month. This premium is included in the monthly mortgage payment and managed through an escrow account. The exact premium fluctuates based on location, home characteristics, and chosen coverage limits.

Private Mortgage Insurance (PMI) is required if the down payment on a conventional loan is less than 20% of the home’s purchase price. This insurance protects the lender if the borrower defaults on the loan. PMI costs range from $30 to $70 per month for every $100,000 borrowed. For a $320,000 loan, this adds $96 to $224 to the monthly payment. This cost continues until a certain level of equity is reached in the home.

Homeowner’s Association (HOA) fees are monthly dues for properties within planned communities, condominiums, or some single-family home neighborhoods. While not all properties have HOA fees, they are common. These fees contribute to the maintenance of common areas, amenities, and community services. Average HOA fees range from $200 to $300 per month, but vary widely from $100 to $1,000 depending on the property and services.

Lender Qualification Criteria

Prospective homebuyers must meet specific criteria established by lenders to qualify for a mortgage on a $400,000 home. Lenders assess income stability, debt-to-income ratio, and credit score, which influence loan approval and interest rates.

Lenders evaluate a borrower’s income to ensure it is stable and sufficient to cover monthly mortgage payments and other financial obligations. They look for a consistent employment history, often over two years. Verifiable income sources, such as salary, wages, or self-employment income, demonstrate repayment capacity. The total income needed depends on factors like interest rate, down payment, and other monthly debts.

The debt-to-income (DTI) ratio is a measure lenders use to assess a borrower’s financial health. It compares total monthly debt payments to gross monthly income. The DTI ratio is calculated by dividing total monthly debt payments, including the prospective mortgage payment, by gross monthly income. For instance, if a borrower has a gross monthly income of $8,000 and a DTI limit of 43%, total monthly debt payments should not exceed $3,440.

Most lenders prefer a DTI ratio below 36%, but some approve loans with a DTI up to 43% or 45% for conventional loans. FHA loans allow a DTI as high as 50%. A lower DTI ratio indicates a greater ability to manage additional debt.

A credit score is an important factor in securing a mortgage and influences the interest rate offered. A good credit score indicates financial responsibility and timely debt repayment. For conventional loans, lenders require a minimum credit score of 620, with scores in the 670-739 range considered good. A credit score of 740 or higher leads to more favorable interest rates.

FHA loans have flexible credit score requirements, allowing approval with scores as low as 500 (with a higher down payment) or 580 for the minimum 3.5% down payment. A higher credit score results in a lower interest rate over the life of the loan, saving tens of thousands of dollars.