What are the Costs of Buying a $1 Million Home?
Buying a $1 million home is a significant financial commitment. One of the first burning issues home buyers will raise is the “down payment for a million dollar home” Well, that is determined by multiple factors. These include the type of your loan, lender requirements, and your financial strategy.
Buying a $1 million home involves more than just the down payment. In addition to the upfront cost, as a homebuyer, you must account for closing costs, property taxes, homeowners insurance, and ongoing maintenance. Closing costs typically range from 2%-5% of the home price ($20,000-$50,000), covering lender fees, title insurance, and escrow charges. Additionally, property taxes can be 1%-3% annually ($10,000-$30,000 per year), while homeowners insurance may cost $3,000-$6,000 per year.
Moreover, lenders often require cash reserves equal to 6-12 months of mortgage payments for jumbo loans, ensuring borrowers have financial stability. Maintenance costs, utilities, and HOA fees (if applicable) can further increase monthly expenses. Buyers should also consider potential renovations or upgrades to the property, which can add thousands of dollars to the overall cost. Proper financial planning and a thorough understanding of these expenses are crucial for anyone considering a $1 million home purchase.
In this guide, I will break down everything you need to know about down payment requirements for a $1 million home, including loan options, strategies to lower upfront costs, and other expenses to consider.
How Much is the Down Payment for a $1 Million Home?
1. Standard Down Payment Requirements
For most home purchases, your lender will require you to pay a 20% down payment to avoid private mortgage insurance (PMI). For a $1 million home purchase, you will need $200,000 upfront. However, there are alternative options that may allow you to put down less.
2. Loan Types and Their Down Payment Requirements
Conventional Loan (20% Down)
- Requires $200,000 down (80% loan-to-value ratio or LTV)
- Avoids PMI (Private Mortgage Insurance)
- Best for buyers with strong credit and financial stability
Jumbo Loan (10%-30% Down)
Since a $1 million home exceeds conforming loan limits, most borrowers need a jumbo loan(Such as Rocket Mortgage Jumbo Smart Loan), which often requires a higher down payment:
- 10% down ($100,000) with PMI
- 20%-30% down ($200,000-$300,000) to avoid PMI and secure better rates
- Stricter approval requirements (higher credit scores, cash reserves, lower debt-to-income ratio)
Low Down Payment Options (Less than 20%)
Some buyers can qualify for lower down payments through special loan programs:
- FHA Loans – Not typically available for $1 million homes due to loan limits.
- VA Loans (0% Down) – Available to eligible military service members and veterans.
- Piggyback Loan (80-10-10) – Combines a first mortgage (80%), a second mortgage (10%), and a 10% down payment ($100,000).
Additional Costs Beyond the Down Payment
The down payment isn’t the only upfront expense when purchasing a $1 million home. Buyers should also consider:
1. Closing Costs (2%-5%)
These include lender fees, title insurance, escrow fees, and prepaid property taxes. Estimated costs:
- $20,000 – $50,000
2. Property Taxes & Homeowners Insurance
- Property taxes can range from 1%-3% annually ($10,000-$30,000 per year).
- Homeowners insurance can cost $3,000-$6,000 per year.
3. Cash Reserves
Many lenders require 6-12 months of mortgage payments in savings to qualify for a jumbo loan.
How to Lower Your Down Payment
If you don’t have 20% saved, here are strategies to reduce the amount needed upfront:
1. Use a Piggyback Loan (80-10-10)
- Take out a second loan for 10% of the home price, reducing the required cash down.
- Helps avoid PMI while keeping monthly payments manageable.
2. Consider Lender-Specific Low Down Payment Jumbo Loans
- Some lenders offer 10%-15% down jumbo loans with competitive interest rates.
3. Look into First-Time Homebuyer Programs
- Check state or local programs that provide down payment assistance.
4. Use a Gifted Down Payment
- Many lenders allow family members to gift part or all of the down payment.
What You Ask
1. Can You Buy a $1 Million Home with 5% Down?
Most lenders do not allow a 5% down payment on a jumbo loan. However, some specialized programs may allow 10% down with PMI.
2. What is the Monthly Mortgage on a $1 Million Home?
Your monthly mortgage depends on the loan amount, interest rate, and loan term. For example:
- 10% down ($900,000 loan) at 7% interest: $5,987/month
- 20% down ($800,000 loan) at 6.5% interest: $5,068/month
3. Is PMI Required for a $1 Million Home?
If you put less than 20% down, you’ll likely need to pay PMI, which increases your monthly payment.
4. How Long Should I Save for a $200,000 Down Payment?
If saving $2,500 per month, it would take 6-7 years to reach $200,000.
Plan Your Down Payment Smartly
The required down payment for a $1 million home varies depending on the loan type, lender requirements, and financial situation. While 20% down ($200,000) is the standard, options exist to lower upfront costs with 10% down jumbo loans, piggyback financing, or VA loans for eligible buyers.
Are You Ready to Take the Next Step?
If you’re serious about purchasing a $1 million home, consult with a mortgage expert to explore the best financing options for your situation.
👉 Start your homebuying journey today by getting pre-approved!
