What Salary Do I Need to Afford a $400k House?

Buying a home is a significant financial undertaking. Affording a $400,000 house involves understanding various financial factors beyond the sticker price. This article explores the key elements and monthly expenses that determine the income needed to comfortably afford such a home.

Core Financial Elements for Home Affordability

Lenders evaluate several aspects of an applicant’s financial health to assess their capacity to repay a mortgage loan. This evaluation begins with income stability and verification.

Lenders use gross income (total earnings before deductions) for affordability calculations. For traditional employment, income verification involves reviewing recent pay stubs and W-2 forms for the past two years, often confirmed directly with employers. Self-employed individuals require two years of personal and business tax returns (e.g., IRS Form 4506-T), profit and loss statements, and bank statements.

The debt-to-income (DTI) ratio measures total monthly debt obligations against gross monthly income. Lenders prefer a DTI of no more than 35% to 36%, though some approve conventional loans up to 45%, or higher for government-backed loans like FHA mortgages (up to 50%). Debts include recurring payments for car loans, student loans, minimum credit card payments, and all prospective housing expenses.

A strong credit score influences mortgage approval and interest rates. A higher score leads to more favorable loan terms. Credit scores are determined by payment history (35%), credit utilization (30%), length of credit history, new credit applications, and diversity of credit types. Conventional loans require a score of 620 or higher; FHA loans are accessible with scores as low as 580, or 500-579 with a larger down payment.

The down payment is the upfront cash contribution toward the home’s purchase price. While 20% is ideal for avoiding Private Mortgage Insurance (PMI), many buyers contribute less. First-time homebuyers’ median down payment is around 9%, with some programs allowing as little as 3% for conventional loans or 3.5% for FHA loans. A down payment less than 20% necessitates PMI.

Comprehensive Monthly Housing Expenses

Owning a $400,000 house involves several ongoing monthly expenses, collectively forming the total housing cost. These costs are often grouped as PITI: Principal, Interest, Taxes, and Insurance, with additional considerations like Homeowners Association (HOA) fees.

The Principal and Interest (P&I) payment is the main monthly mortgage expense. It’s influenced by the loan amount, interest rate, and loan term (commonly 30-year fixed). For a $400,000 home, the loan amount varies by down payment: 20% ($80,000) means a $320,000 loan; 10% ($40,000) is $360,000; and 5% ($20,000) is $380,000. As of August 20, 2025, average 30-year fixed rates are 6.62% to 6.79%. At 6.75% interest, monthly P&I is approximately $2,075 for a $320,000 loan, $2,334 for $360,000, and $2,464 for $380,000.

Property taxes are an annual expense levied by local governments based on the home’s assessed value. These taxes are paid monthly as part of the escrow account managed by the mortgage lender. Rates vary by location, but a common estimation for a $400,000 home ranges from 0.5% to 2% of the value annually, translating to approximately $167 to $667 per month.

Homeowner’s insurance protects against property damage and liability claims. Lenders require this coverage. The average annual premium for a $400,000 home ranges from $3,180 to $4,427, or roughly $265 to $369 per month. Actual costs depend on factors like location, home’s age and construction, and chosen coverage limits and deductibles.

Private Mortgage Insurance (PMI) is required when the down payment on a conventional loan is less than 20%. PMI rates range from 0.3% to 1.5% of the original loan amount annually, added to the monthly mortgage payment. For a $380,000 loan with 5% down, an 0.8% annual PMI rate adds about $253 per month. Borrowers can request PMI cancellation once their loan balance reaches 80% of the home’s original value. Lenders must automatically terminate PMI when the loan-to-value (LTV) ratio reaches 78%, or at the midpoint of the loan’s amortization schedule (e.g., 15 years on a 30-year loan), provided payments are current.

Homeowners Association (HOA) fees are another monthly cost, particularly for properties within planned communities, condominiums, or townhouses. These fees cover the maintenance and management of common areas and shared amenities. Average monthly HOA fees in the U.S. range from around $170 to $390, but can be higher depending on services and amenities.

Determining the Required Income

Lenders use specific guidelines, primarily focusing on debt-to-income ratios, to determine how much they will lend. The “28/36 rule” is a common framework to assess affordability.

The first part of this rule, the front-end ratio, states that monthly housing costs should not exceed 28% of the borrower’s gross monthly income. Housing costs include principal and interest, property taxes, homeowner’s insurance, and any applicable PMI and HOA fees. For example, if total estimated monthly housing expense is $3,000, the minimum gross monthly income required is $3,000 divided by 0.28, or approximately $10,714. This is an annual gross income of about $128,568.

The second part of the rule, the back-end ratio, states that total monthly debt payments (including housing costs and other recurring debts) should not exceed 36% of gross monthly income. If $3,000 in housing costs combines with $500 in other monthly debt, total monthly debt is $3,500. Under the 36% rule, the minimum gross monthly income required is $3,500 divided by 0.36, or approximately $9,722. This is an annual gross income of about $116,664. Lenders approve the loan based on the stricter of the two ratios.

To illustrate required salaries for a $400,000 home, consider varying down payments and existing debt. With a 20% down payment ($320,000 loan) and 6.75% interest, P&I is roughly $2,075. Adding estimated property taxes ($400), homeowner’s insurance ($300), and no PMI or HOA fees, total housing cost is $2,775. Applying the 28% rule, a gross annual income of approximately $118,929 is needed. If there were $300 in other monthly debts, the 36% rule requires roughly $102,500. In this scenario, the 28% rule is the limiting factor.

Alternatively, with a 5% down payment ($380,000 loan) and 6.75% interest, P&I is about $2,464. Including estimated property taxes ($400), homeowner’s insurance ($300), and PMI ($250), total housing cost becomes $3,414. The 28% rule necessitates a gross annual income of approximately $146,314. If there were $400 in other monthly debts, the 36% rule requires roughly $127,133. The 28% rule indicates the higher income requirement here. These examples highlight how down payment, interest rates, and existing debt impact the necessary salary.

While these rules provide a framework, they are guidelines. Lenders also consider other factors during underwriting, like a borrower’s savings, job stability, and market conditions.