How much does a person have to make to own 2 million dollar homes? if you have such kind of question, stick to the end of this guide.
Buying a 2 million dollar house may seem like an ambitious goal. But I will tell you for free, its achievable. This is possible with proper financial planning and good understanding of your income requirements.
Whether you consider buying a million dollar house or simply dreaming of upscale living, the question on your mind is likely: What income is needed to afford a $2 million dollar house? In this comprehensive piece of guide, we’ll explore the factors that determine affordability, including your income, mortgage, down payment, and other associated costs. By the end of this piece, you’ll have a clear understanding of the financial benchmarks required to turn that dream house into a reality.
What Does It Take to Afford a $2 Million House?
The general rule for home affordability is that your monthly housing costs (including mortgage, taxes, and insurance) should not exceed 28% to 30% of your gross monthly income. With this principle in mind, you can calculate the income that you require to afford a $2 million dollar house.
1. Down Payment Requirements
Most lenders require that you pay a 20% down payment for houses costing 2 million. This means you’ll need $400,000 upfront before even considering other costs. For you as a buyer, this amount may come from your savings, investments, or the sale of a previous home.
If you opt for a lower down payment, you’ll need to pay private mortgage insurance (PMI), which adds to your monthly expenses and increases your overall income required to qualify for the loan.
2. Mortgage Payments
Assuming you take a loan for the remaining $1.6 million at an interest rate of 7% (30-year fixed mortgage), your monthly mortgage payment will be approximately $10,644. This amount doesn’t include property taxes, homeowners insurance, or other costs that come with owning a high-value property.
To comfortably manage this mortgage payment, your gross annual income should be at least $425,000 to $500,000, depending on your debt-to-income (DTI) ratio and other obligations. To learn more, read How Much Income for a $2 Million Dollar Mortgage?
3. Property Taxes and Homeowners Insurance
Luxury homes often come with higher property taxes. Property taxes vary depending on your location, but for a $2 million dollar house, expect an annual tax bill of $20,000 to $40,000, which translates to $1,667 to $3,333 per month.
Homeowners insurance for high-value properties also adds to the monthly expense, typically costing between $5,000 and $7,000 per year, or $416 to $583 per month.
How Much Do You Need to Earn to Afford 2 Million Dollar House?
Let’s put these numbers together to determine the total monthly income that you require:
- Mortgage Payment: $10,644/month
- Property Taxes: $2,500/month (average)
- Homeowners Insurance: $500/month
This brings your total monthly housing cost to approximately $13,644. Based on the 28%-30% affordability rule, your gross monthly income should be around $48,700 to $50,000, translating to an annual income of $585,000 to $600,000.
Factors That Influence 2 Million Dollar House Affordability
1. Debt-to-Income Ratio
Lenders consider your debt-to-income (DTI) ratio to determine whether you qualify for a loan. For a luxury home, a DTI ratio of 36% or lower is often required. If you have significant student loans, car payments, or credit card debt, your required income may be higher.
2. Lifestyle and Discretionary Spending
Owning a $2 million dollar house isn’t just about making the mortgage payment. You’ll also need to budget for utilities, maintenance, landscaping, and HOA fees (if applicable). These expenses can add up to several thousand dollars annually.
3. Interest Rates
The income required to afford a $2 million dollar house varies significantly based on mortgage interest rates. For example, a lower rate of 5% would reduce your monthly payment to about $8,600, requiring a lower annual income of around $500,000. Conversely, higher rates would increase both your payment and income requirement.
Can You Afford a $2 Million Dollar House Without a $600,000 Income?
While the numbers above provide a benchmark, there are strategies to afford a $2 million dollar house with a lower income:
1. Larger Down Payment
If you increase your down payment to 30%-50%, your loan amount decreases, which reduces your monthly payment and income requirements. For example, a 50% down payment ($1 million) would lower your mortgage to $1 million, resulting in a monthly payment of around $6,645 at 7% interest.
2. Opt for a Shorter Loan Term
A 15-year mortgage often comes with lower interest rates. While monthly payments are higher, you save significantly on interest over the life of the loan and may qualify with a slightly lower income.
3. Reduce Other Debts
Paying off existing debts before applying for a mortgage can improve your DTI ratio and increase your chances of qualifying for a loan with a lower income.
What Else Should You Consider?
Luxury Home Maintenance Costs
Owning a $2 million dollar house comes with unique challenges. Maintenance costs for a larger home are significantly higher than for a median-priced home. Annual costs for repairs, HVAC servicing, and landscaping can range from 1%-3% of the property value. That’s $20,000 to $60,000 annually for a $2 million home.
Tax Benefits
There are potential tax benefits to owning a high-value home. Mortgage interest and property taxes are tax-deductible (up to certain limits). Consult a financial advisor to maximize these benefits.
Scenarios for Income to Afford a $2 Million Dollar House
Scenario 1: Traditional Buyer with 20% Down Payment
- Down Payment: $400,000
- Loan Amount: $1.6 million
- Interest Rate: 7%
- Monthly Payment: $13,644 (including taxes and insurance)
- Required Income: $585,000/year
Scenario 2: High Down Payment of 50%
- Down Payment: $1 million
- Loan Amount: $1 million
- Interest Rate: 6.5%
- Monthly Payment: $8,600 (including taxes and insurance)
- Required Income: $430,000/year
Scenario 3: No Debt and Minimal Lifestyle Costs
- Down Payment: $500,000
- Loan Amount: $1.5 million
- Interest Rate: 6.8%
- Monthly Payment: $12,000 (including taxes and insurance)
- Required Income: $525,000/year
How to Start Planning for a $2 Million Dollar House
If purchasing a luxury property is your goal, here are steps to help you get there:
- Assess Your Finances: Use a house affordability calculator to evaluate your current financial situation.
- Build Your Down Payment: Aim for at least 20% to avoid PMI.
- Lower Your Debt: Reduce your DTI ratio by paying off existing loans.
- Improve Your Credit Score: A high credit score qualifies you for better mortgage terms.
- Consult a Financial Advisor: They can help you navigate complex tax and investment strategies to meet your goals.
In Summary
Owning a $2 million dollar house is more than just a dream—it’s a calculated financial goal that requires strategic planning. With an annual income of around $585,000 to $600,000, or adjustments like a larger down payment, you can comfortably afford a luxury property without stretching your finances too thin.
Whether you’re just starting the process or refining your financial strategy, understanding the costs of purchasing and maintaining such a home ensures you’re prepared for the investment. Ready to take the leap? The path to your $2 million dream home starts today.
