How Much Income Is Needed for a Million Dollar Home?

Owning a high-value home, such as a million-dollar property, represents a significant financial aspiration for many. Understanding the financial commitments involved extends beyond the purchase price. Prospective homeowners must consider a range of initial and ongoing expenses, along with the specific financial metrics lenders evaluate for such a substantial investment. This comprehensive view is essential to determine the financial feasibility of acquiring and maintaining a million-dollar residence.

Calculating the Income Threshold

Lenders assess a borrower’s capacity to repay a mortgage through their income. A common guideline is the 28/36 rule, which suggests that housing costs should not exceed 28% of a borrower’s gross monthly income. This 28% portion pertains to the principal and interest (P&I) components of the mortgage payment. For a million-dollar home, after a typical down payment, the loan amount would be substantial, influencing the required income.

The prevailing interest rate impacts the monthly mortgage payment and, consequently, the income needed to qualify. For instance, with a $1,000,000 home and a 20% down payment of $200,000, the loan amount would be $800,000. If the average 30-year fixed mortgage interest rate is around 6.68% (as of August 2025), the principal and interest payment on an $800,000 loan would be about $5,130 per month. To adhere to the 28% housing expense ratio, a borrower’s gross monthly income would need to be at least $18,321 ($5,130 / 0.28). This translates to an annual gross income of about $219,852.

Rising interest rates increase the required income for the same loan amount. A higher interest rate means a larger monthly P&I payment, requiring a higher gross monthly income to stay within the 28% threshold. This initial income calculation focuses on the mortgage’s principal and interest, forming the income requirement for a high-value home.

Initial Financial Outlays

Purchasing a million-dollar home requires upfront cash beyond the monthly mortgage payments. The down payment is a primary component, with conventional and jumbo loans often requiring 20% or more for high-value properties to avoid private mortgage insurance (PMI). For a $1,000,000 home, a 20% down payment amounts to $200,000. While some loan programs might allow lower down payments, a larger upfront contribution results in more favorable loan terms.

Beyond the down payment, closing costs represent another cash outlay, ranging from 2% to 5% of the loan amount or home value. For an $800,000 loan, this could mean an additional $16,000 to $40,000 in fees. These costs encompass charges like loan origination fees, appraisal fees, and title insurance premiums. Closing costs also include escrow fees, recording fees, and prepaid property taxes and homeowners insurance premiums collected at closing. Buyers should budget for these expenses in addition to their down payment to ensure sufficient funds at purchase.

Ongoing Costs of Ownership

Owning a million-dollar home involves recurring expenses beyond the principal and interest portion of the mortgage payment. Property taxes are a substantial ongoing cost, assessed by local authorities based on the home’s value and local tax rates. These taxes can vary by location but often represent a monthly burden, and they are collected through an escrow account alongside the mortgage payment.

Homeowners insurance is another recurring expense, protecting against damage and liability. The cost of homeowners insurance is influenced by the home’s value, location, construction materials, and chosen coverage limits. Higher-value homes incur higher insurance premiums. Utility costs, including electricity, gas, water, and internet, are also ongoing expenses, and they are higher for larger properties due to increased consumption.

Maintenance and repairs are a part of homeownership, and these costs are higher for larger, more complex million-dollar homes. Experts suggest budgeting 1% to 4% of the home’s value annually for maintenance. For a $1,000,000 home, this translates to an annual budget of $10,000 to $40,000 for upkeep, landscaping, and system repairs. This proactive budgeting helps manage expenses like roof repairs, HVAC servicing, or plumbing issues.

Key Qualification Factors

Lenders employ several financial metrics to determine a borrower’s eligibility for a high-value mortgage, ensuring they can manage the financial commitment. The debt-to-income (DTI) ratio is an important measure, comparing a borrower’s total monthly debt payments to their gross monthly income. While the 28% rule addresses housing costs, the broader 36% DTI rule encompasses all monthly debt obligations, including credit cards, car loans, student loans, and the proposed mortgage payment. Lenders prefer a total DTI ratio of 36% or lower, though some may approve higher ratios depending on other compensating factors.

A strong credit score is essential for securing a mortgage, particularly for jumbo loans that exceed conventional loan limits. Lenders often require a FICO score of 700 or higher, with scores of 740 or above yielding favorable interest rates and loan terms. A strong credit history demonstrates a borrower’s reliability in managing financial obligations.

Lenders also scrutinize a borrower’s assets and reserves, especially for million-dollar homes. Beyond the down payment and closing costs, liquid assets are required, amounting to several months of mortgage payments held in reserve. This requirement provides a financial cushion, assuring lenders that the borrower can cover payments during unforeseen circumstances. Loans for properties exceeding the conforming loan limit (e.g., $806,500 in most areas for 2025) are classified as jumbo loans, which have stricter qualification criteria due to the increased risk. These stricter requirements reflect the larger loan amounts and the need for greater financial stability.