While spending $2 million for a home may sound astronomical for some people, it’s close to the median sales price in areas like New York, San Jose, or San Francisco. Even if you don’t live in one of these areas, perhaps you’re doing well for yourself and want to finally purchase your dream home. Here is a look at what kind of salary, down payment, and monthly mortgage payment is needed to afford a $2 million home.
What Salary Is Needed to Afford a $2 Million Home?
What Is the Monthly Mortgage Payment for a $2 Million Home?
How Much Down Payment is Needed to Purchase a $2 Million Home?
Closing Costs On a $2 Million House
How to Afford a $2 Million House Bottom Line
Assuming you are financing the purchase and put at least 20% down, most lenders will require you to have a salary of at least $450,000 per year to qualify for a $2 million home loan. This could be household income if both you and your spouse are on the loan.
Your debt-to-income ratio, credit score, and down payment will also impact how much income is required. If you have a lower credit score or a lot of debt, lenders will likely require you to have a higher salary or put down a larger down payment. You may also need to be willing to accept a higher interest rate to compensate for the added risk.
The national average for a 30-year fixed-rate jumbo loan mortgage is around 3.5%. At that rate, the monthly mortgage payment for a $2 million home will be around $7,800 per month, with a 20% down payment. But this rate can be lower or higher depending on your financial profile, down payment, or the length and type of loan.
Besides the down payment, the exact monthly mortgage payment will also vary depending on the interest rate you’re able to secure from a lender. For instance, you may be able to secure a better rate by going with a 15-year mortgage if you want to pay off the loan faster. This will also increase your monthly obligation. But it may be worth it if you’re looking to pay down the loan faster and you have the necessary income.
Most experts agree that you should not spend more than 28% of your monthly income on mortgage payments. So, with a 30-year adjustable-rate mortgage at 3.5%, you should be able to show an annual household income of around 386,000.
With a solid financial profile and relationship with your lender, you may be able to get a better rate and therefore qualify for a loan with less income. But that’s generally what you should expect if you are looking to purchase a $2 million home.
Most lenders suggest making a down payment of at least 20% at closing. For a $2 million home, that means saving up at least $400,000. Not all lenders require a 20% down payment, and you may be able to get away with 5%-10% (which is still $100,000 - $200,000). But many lenders will require the full 20% for a loan that large.
If you are not able to make the full down payment, you may be required to pay for private mortgage insurance, which will be added to your monthly mortgage payments. However, there are programs available that require as little as 5% down with no PMI. So, you’ll have to shop around to find a lending program that makes sense for your situation.
Keep in mind that you will also have to pay closing costs on top of the down payment. This includes fees related to the closing of the sale, including loan origination fees, title fees, credit check fees, taxes, appraisal fees, and so on. These fees can often add up to between 2-5% of the total loan amount (or $40,000 to $100,000). Plus, you’ll also have to factor in any legal fees or broker commissions.
So bottom line, if you are planning on purchasing a $2 million home, you should have ample cash saved up to pay for the various related expenses. The more money you have in the bank, the more likely you are to be approved for the loan and be able to complete the transaction without any unexpected hassles.
Rising interest rates are making it harder to afford a $2 million home, but you can still buy a multimillion-dollar property if you have a high enough income and savings. You will need to have a minimum salary of $450,000 and should have at least $500,000 saved to cover the down payment and closing costs.
And remember that the exact salary requirements for a $2 million home will vary depending on the lender and down payment amount. The larger your down payment, the less income you’ll need, as you’ll be borrowing less money. Mortgage loans that large can be difficult to obtain. However, with the right financial credentials and income, it’s certainly doable.