Dreaming of a $700K home? Before you start browsing listings, it’s crucial to determine if your income can handle such a hefty price tag. This guide will delve into the factors that influence affordability and help you calculate the income you’ll need to comfortably swing a $700K mortgage.
The 28/36 Rule: Your Income Compass
The 28/36 rule is a widely used benchmark in the real estate world. It recommends that your monthly housing expenses shouldn’t exceed 28% of your gross income, while your total debt obligations (including housing) should stay below 36%.
Let’s break down how this applies to a $700K home purchase:
- Down payment: A 20% down payment on a $700K home translates to $140,000 upfront, reducing your loan amount and monthly payments.
- Loan-to-value ratio (LTV): Your down payment determines your LTV, which lenders use to assess risk. A lower LTV often leads to better loan terms.
- Mortgage rate: Interest rates significantly impact your monthly payments. A 0.5% difference can translate to thousands of dollars over the loan’s life.
- Credit score: A higher credit score unlocks lower interest rates, saving you money on your mortgage.
- Debt-to-income ratio (DTI): This ratio measures your debt obligations against your income. A lower DTI indicates a more manageable financial situation for lenders.
Calculating Your Affordability:
Assuming a 30-year fixed-rate mortgage with a 20% down payment and a 6.5% interest rate, your monthly principal and interest payment would be around $3,539. Adding property taxes, homeowners insurance, and potential HOA fees, your total monthly housing cost could reach approximately $4,200.
Now, let’s apply the 28/36 rule. Multiplying $4,200 by 12 for an annual figure gives us $50,400. According to the rule, you’d need a minimum annual income of $151,200 to afford this home.
Remember, these numbers are estimates. Your actual affordability will depend on your specific financial situation and local costs.
Additional Factors to Consider:
- Location: Housing costs vary greatly across the country. A $700K budget might stretch further in some areas than others.
- Lifestyle: Consider your desired lifestyle and ongoing expenses. Can you comfortably afford a $700K home without sacrificing other financial goals?
- Financial assistance: Explore government programs and local initiatives that offer down payment assistance or other homeownership support.
Staying the Course:
Once you’re under contract for a home, maintain your financial discipline. Avoid taking on new debt or making major purchases that could affect your credit score or DTI.
Working with a Real Estate Agent:
A knowledgeable real estate agent can guide you through the homebuying process and provide invaluable insights into local market conditions and financing options.
FAQs:
Can I afford a $700K home with a $200K salary?
Yes, it’s likely possible. Assuming the same mortgage terms as above, your monthly housing costs would be covered by your income, allowing for some wiggle room within the 28/36 rule. However, carefully evaluate your other debts and expenses to ensure you’re not overextending yourself.
What factors affect how much house I can afford?
Several factors influence affordability, including income, credit score, interest rates, location, and lifestyle. It’s crucial to consider all these aspects before making a purchase decision.
Remember, buying a home is a significant financial commitment. Carefully assess your affordability and seek professional guidance to make an informed decision that aligns with your long-term financial goals.
Factors when Determining Whether You Have the Salary to Afford a 700k House
The following will be determining factors when it comes to the salary needed to afford a 700k house.
- Steady and Consistent Income: When assessing your income, lenders will take these two factors into account. In other words, have you been receiving this pay for the last two years or did you recently receive a sizable raise? Do you receive all of your income as a fixed base salary or do you receive bonuses or commissions as well?
- Down Payment: Your ability to qualify for a mortgage on a $700,000 home will be greatly influenced by the size of the down payment you can afford. The larger the down payment, the lower your required salary is to purchase a $700,000 home. A greater down payment could also make other mortgage programs available that might not otherwise be in this price range.
- Property Taxes: The amount of money required each month to pay property taxes will have a big influence on how much salary is needed to buy a $700,000 home. Purchasing a property with lower taxes will make you more eligible.
- Homeowner’s Insurance – The amount you pay each month for homeowner’s insurance will affect your ability to afford the house, much like property taxes do. When you are looking for a mortgage lender, or at least around that time, start looking for homeowner’s insurance.
- Other Consumer Debt: When a lender obtains a credit report, they will view any additional monthly payments you make related to consumer debt, including mortgages and other loans. When calculating your debt to income ratio, the total monthly payments listed on your credit report will be used against you. As a result, you should refrain from taking on debt with large repayments. We advise delaying your car purchase until after your mortgage closes if you are considering doing so. Having a car loan will make it more difficult to be approved for a mortgage.
- Mortgage Program: When purchasing a $700,000 home, there are mortgage programs available that are superior to others. For instance, a higher debt to income ratio is permitted with FHA loans. This loan would be advised, but only provided that the county’s FHA loan limits are sufficiently high. In the interim, you might be able to qualify for a No Doc Loan or a Non QM Mortgage without having to look at your income.
- Interest Rates: The interest rate you have access to will have a significant impact on how much money you need to make a $700,000 house payment. You will be able to afford more the lower the rate. Significant increases in the housing market can also be attributed in part to low rates.
- HOA Fees: Monthly home owners association (HOA) dues immediately lower the amount you are eligible for. As a result, we advise looking for a house without a homeowners association.
The salary needed for you to afford a 700k house will be different based upon these factors. Let us help you to find a way to make this work. Start by filling out this brief quote form, and one of our qualified loan officers will get in touch with you to go over your situation.
Salary to Afford a 700k House
The pay required to purchase a $700,000 home will depend on a number of variables, such as the mortgage program, property taxes, and current mortgage rates.
A salary of approximately $150k per year is needed to afford a $700k home. This is predicated on the following assumptions: a down payment of 2020%, $8k in property taxes, and an interest rate of 2055 5%, and other debt payments of $500 per month).