Can You Afford a $500k House? Here’s What You Need to Earn

To buy a $500,000 house, you need to make about $130,000 per year according to our methodology, although many variables go into determining the actual income you may need.

A decade ago, $500,000 would get you a luxury home throughout most of the country. Today, however, with the Federal Reserve reporting a median US purchase price of $417,700, it’s becoming increasingly common for your average buyer to spend half a million on their property.

What Income Do I Need to Afford a $500k House?

Conventional lenders typically allow you to allocate up to 36% of your monthly income to mortgage-related expenses. This includes your principal, interest, insurance premiums, taxes, and homeowners association dues.

With a 5% down payment, the monthly mortgage for a $500,000 house, including estimated PMI, taxes, and insurance, would be $3,910 at an average 30-year conventional interest rate of 7.18%.

Based on conventional lender guidelines, you would need to make just over $130,000 per year – around $11,000 per month – to qualify for the loan.

However, this is just the minimum allowable income; if you have other existing debts, your required income could be much higher.

Your Debt Level Changes the Equation

Lenders use a metric called the debt-to-income (DTI) ratio to determine your eligible loan size. Your DTI measures how your monthly income stacks up against your recurring debt obligations, including the mortgage you're applying for.

To calculate your DTI, lenders divide your monthly debts by your total qualifying income. The percentage of your income that you spend on housing expenses is your front-end (housing) DTI.

As we mentioned, most conventional lenders allow this figure to be as high as 36%. If you earn $11,000 monthly, the maximum allowable front-end DTI would amount to $3,960 – just above the estimated $3,910 mortgage payment on a $500,000 house.

Your back-end (total) DTI measures all your existing debts, including your mortgage. This could also include car loans, credit card minimums, and personal or student loans. Conventional lenders generally want to see a back-end DTI that’s no higher than 45%.

If you had a monthly income of $11,000, your total debt could be as high as $4,950. This means, based on our front-end calculation, you can have around $1,000 in other recurring payments and still qualify for a $500k home.

But what if you have more than $1,000 in other monthly payments? Here's a chart covering how your existing debts might impact the income level you need to qualify for your mortgage:

Remember, these estimates are based on a back-end debt-to-income ratio of 45%. Some lenders may require a lower figure, while others could allow a total DTI as high as 50% in certain situations.

How Interest Rates Impact Buying a $500k Home

The income level needed to support purchasing a $500k home will be much different today than just a few years ago when interest rates were near their all-time low. That's because higher interest rates equate to a higher monthly payment that takes up a more sizable portion of your income.

Our calculations are based on the current conventional 30-year interest rate from the Mortgage Research Center homepage – 7.18% at the time of writing. However, rates are constantly in flux, and based on your financial situation, you may qualify for a rate lower or higher than the average.

So, how do interest rates impact buying a $500k home? Here's what you could expect to pay per month at different interest rates and the level of monthly income you would need to qualify for the loan:

Reduce Mortgage Costs With a Larger Down Payment

So far, we've based our estimates on a 5% down payment. But what if you can put more down? By reducing the amount you need to finance, you can qualify for more home without boosting your income.

Here’s what the numbers could look like if you were to make a 10%, 15%, or 20% down payment instead:

Reducing or Eliminating PMI

Conventional lenders require borrowers with less than 20% down to pay for private mortgage insurance (PMI). PMI protects the lender if you can’t pay your mortgage. The cost of PMI depends on your credit score, down payment, and your mortgage type.

For example, through PMI provider MGIC, a borrower with a credit score of 650 putting 5% ($25,000) down would pay an annual PMI rate of 1.33% – $525 per month.

A borrower with a credit score of 750 putting 10% ($50,000) down would pay a PMI rate of just 0.38% – just $140 on a $450,000 loan.

By putting 20% down, you can eliminate the need for PMI altogether.

These moves could allow you to make a much lower salary and still afford a $500,000 home.

Other Strategies to Afford a $500k House

Unsure if you have the qualifying income to afford a $500k house? Here are strategies that may help you stretch your funds further and get into a half-million dollar home.

Purchase Lender Discount Points

Lenders will typically allow you to purchase discount points at closing to reduce the interest rate on your mortgage. As a rule of thumb, you can plan on lenders charging 1% of your loan balance per discount point, with each point reducing your interest rate by around 0.25%.

The number of discount points you can buy depends on the lender you choose, and some will even allow you to purchase fractions of points.

Apply for Down Payment Assistance

Down payment assistance (DPA) programs help qualifying buyers cover the costs of purchasing a home. DPA programs are most commonly available through localized government agencies and non-profits. Still, some are offered by banks, credit unions, and even mortgage lenders. Some employers may even offer down payment assistance to their employees.

Find Out If You Qualify to Buy a $500k House

Based on our estimates, you will need to earn at least $130,000 per year to qualify for a conventional loan on a $500,000 house. But everyone's situation is different – you may be eligible for a lower interest rate or be able to contribute a larger down payment, both of which could reduce your monthly costs and help you afford more home on your current income.

See how much you qualify for. Start by finding a lender here.

Methodology

Unless otherwise noted, calculations in this article are based on a 30-year conventional mortgage at an interest rate of 7.18%. Estimates assume a 5% down payment, 1% of the purchase price as annual taxes, $125 per month for homeowners insurance, and mortgage insurance costs based on a credit score of 760. Our figures do not include potential HOA fees and assume closing costs are not wrapped into the loan.