How Much Income Do You Need to Afford a $400k House?

Affording a home valued at $400,000 involves more than a single income figure; it encompasses various financial elements that collectively determine what is truly affordable. Understanding these components and how they interact provides a clearer picture of the income level needed to manage homeownership responsibilities. This article explores the factors influencing home affordability and guides readers through purchasing a property of this value.

Key Components of Affordability

The purchase price of $400,000 serves as the initial benchmark, but several other financial elements significantly influence the total cost and the income required. These components shape the monthly financial commitment.

Down Payment

The down payment is the portion of the home’s purchase price paid at the time of sale. This payment directly reduces the amount borrowed, lowering the principal loan amount and subsequent monthly mortgage payments. Down payments often range from 3.5% for certain loan types to 20% or more, with a larger down payment leading to more favorable loan terms.

Loan Interest Rate

The loan interest rate represents the cost of borrowing money over the loan’s term. Market conditions and an individual’s credit score directly impact this rate, affecting the total amount paid over the loan’s life and the monthly payment size. Even a small difference in the interest rate can result in substantial savings or added costs over 30 years. For instance, the average 30-year fixed mortgage interest rate was around 6.74% as of August 5, 2025.

Property Taxes

Property taxes are an ongoing expense, levied by local governments based on the home’s assessed value. These taxes support public services and infrastructure, and their rates vary considerably by location. Nationally, effective property tax rates have recently been around 0.909% of a home’s value, though some states experience rates as low as 0.318% or as high as 1.825%.

Homeowner’s Insurance (HOI)

Homeowner’s insurance (HOI) provides financial protection against property damage and liability for accidents on the premises. The cost of HOI varies based on factors like the home’s location, construction, chosen coverage limits, and deductible amount. For a dwelling coverage of $300,000, the average annual cost of homeowner’s insurance in the U.S. has been around $2,110 to $2,397, which would be higher for a $400,000 home.

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is an additional cost required when a homebuyer makes a down payment of less than 20% of the home’s purchase price. This insurance protects the lender if the borrower defaults on the loan. PMI ranges from 0.46% to 1.50% of the original loan amount annually and is added to the monthly mortgage payment, though it can be canceled once sufficient home equity is established.

Homeowners Association (HOA) Fees

Homeowners Association (HOA) fees are an expense for properties located within planned communities, condominiums, or townhouses. These fees cover the maintenance and repair of shared amenities and common areas. While not all properties have HOA fees, they represent an additional regular payment that must be factored into the housing budget.

Calculating Your Monthly Housing Payment

Understanding how the various components combine into a total monthly payment is a key step in assessing affordability. The core of a mortgage payment is referred to as PITI: Principal, Interest, Taxes, and Insurance. This calculation provides a realistic estimate of the ongoing housing expense.

For a $400,000 home, a 10% down payment is $40,000, leaving a loan amount of $360,000. Using an average 30-year fixed mortgage interest rate of 6.74%, the principal and interest portion of the monthly payment would be approximately $2,337.48. This figure represents the repayment of borrowed capital and the cost of borrowing over the loan’s term.

Next, we incorporate property taxes and homeowner’s insurance. Assuming an annual property tax rate of 1% of the home’s value, the annual tax would be $4,000, translating to approximately $333.33 per month. For homeowner’s insurance, an estimated annual cost of $2,400 would add $200 to the monthly payment. These amounts are collected by the lender and held in an escrow account, ensuring timely payment to the respective authorities.

Since our example includes a down payment of less than 20%, Private Mortgage Insurance (PMI) would also be required. Using an estimated PMI rate of 0.8% of the original loan amount annually, the cost would be $2,880 per year, or $240 per month. Combining these figures, the total estimated monthly housing payment (PITI plus PMI) for this $400,000 home would be approximately $3,110.81. This figure provides a clearer picture of the recurring financial obligation.

Lender’s Perspective: Debt-to-Income Ratio

Lenders assess a borrower’s capacity to repay a mortgage primarily through the Debt-to-Income (DTI) ratio, a key determinant of loan qualification. This ratio compares an individual’s total monthly debt payments to their gross monthly income. Two main types of DTI are considered: the “front-end” ratio and the “back-end” ratio.

The front-end DTI ratio focuses on housing-related costs, including the proposed monthly mortgage payment, property taxes, homeowner’s insurance, and any applicable mortgage insurance or HOA fees, as a percentage of gross monthly income. Lenders prefer this ratio to be no more than 28%. The back-end DTI ratio encompasses all monthly debt payments—including housing costs, credit card minimums, car loans, and student loan payments—against gross monthly income. Lenders prefer a back-end DTI ratio of 36% or lower, though some loan programs, such as FHA loans, may allow for ratios up to 50% under conditions.

To illustrate, using our calculated monthly housing payment of $3,111 for a $400,000 home, and assuming additional monthly debts like a $400 car payment, $250 student loan payment, and $100 in credit card minimums, the total monthly debt obligations would be $3,861. To meet a 28% front-end DTI, a borrower would need a gross monthly income of at least $11,110.71. For a 36% back-end DTI, a gross monthly income of at least $10,725 would be required. Therefore, based on these common DTI thresholds, a gross annual income ranging from $128,700 to $133,329 would be needed to afford a $400,000 home, considering debt loads.

Beyond the Monthly Payment

While the monthly housing payment is a primary consideration, homeownership involves additional significant costs not included in regular mortgage payments. These expenses should be accounted for to ensure a full understanding of the financial commitment. Preparing for these outlays helps prevent unexpected financial strain and supports long-term homeownership stability.

Closing Costs

Closing costs represent various fees and expenses paid at the close of the real estate transaction. These can include loan origination fees, appraisal fees, title insurance, and other charges associated with finalizing the mortgage and transferring property ownership. Closing costs range from 2% to 5% of the home’s purchase price. For a $400,000 home, this could mean an additional $8,000 to $20,000 due at closing, separate from the down payment.

Moving Expenses

Moving expenses, while overlooked, can also add up. These costs include hiring professional movers, packing supplies, utility connection fees, and initial setup costs for a new residence. Planning for these logistical expenses helps ensure a smooth transition into the new home.

Ongoing Maintenance and Repairs

Ongoing maintenance and repairs are responsibilities of homeownership. Unlike renting, there is no landlord to cover the costs of a leaky roof, a broken appliance, or routine upkeep. A common budgeting guideline suggests setting aside 1% to 2% of the home’s value annually for maintenance and repairs. For a $400,000 home, this translates to an annual budget of $4,000 to $8,000 for upkeep.

Utility Costs

Utility costs are a consistent monthly expense not covered by the mortgage payment. These include electricity, gas, water, sewer, trash collection, and internet services. The amounts vary based on factors such as the home’s size, energy efficiency, and local rates, but they represent an ongoing financial commitment beyond the PITI and other housing-related fees.