Before buying a $500,000 home, you must be sure you qualify for financing. If you plan on going with a conventional mortgage, you will need to save up for a 20% down payment (or $100,000) and show enough income to safely cover the mortgage payment. You will also need a credit score of at least 620 (although some lenders require a higher score).
You could also decide to go with an FHA loan. To qualify, you will need at least a 3.5% down payment ($17,500) and a credit score of 580 or above. VA and USDA loans are also viable options for veterans and rural homeowners that offer flexible credit requirements and 0% down payment options. But you will need to look into the qualifications to ensure they are viable options for your situation.
$500k House Mortgage Payment
The monthly mortgage payment on a $500,000 loan will vary depending on the interest rate you can secure, which will depend on your credit and income. The average interest rate for a 30-year fixed-rate mortgage is around 7.2%. So, if you could secure this rate with the full 20% down payment, your monthly mortgage payment would be $2,715.
Income Needed for a $500k Mortgage
Most experts recommend not spending more than 28% of your income on a mortgage payment. So, to comfortably afford the monthly payments, you should make about $10,000 per month (or $120,000 per year). However, you may get away with showing less income if you have a higher credit score or if you can make a larger down payment.
If you want to pay the loan off faster, you might choose a 15-year fixed-rate loan, which would require a monthly payment of $3,640 with a 20% down payment and a 7.2% interest rate. However, you would also need an income of around $155,000 to qualify, but you would save yourself from paying additional interest over time.
$500k House Upkeep and Maintenance
You’ll also want to be sure to budget for upkeep and maintenance. While the exact costs will vary depending on the size and location of the property, among other factors, most experts recommend budgeting about 1-2% of the purchase price annually to pay for upkeep and maintenance. So, for a $500,000 home, you’ll want to save about $5,000 to $10,000 per year.
$500k House Taxes
Taxes can also be a significant concern that will vary depending on the state you live in. States like New Jersey, Illinois, and New Hampshire have the highest property tax rates, while Hawaii, Alaska, and Colorado have among the lowest. The average effective property tax rate in the US is 1.1%, which would mean an annual bill of about $5,500 for a $500,000 home, but it can be higher or lower depending on the state.
To comfortably afford a $500,000 home, your net worth should be between $150,000 to $250,000. Most lenders will want to see that you have at least 3-6 months of living expenses saved to prepare for emergencies. The exact amount you’ll want to save will depend on your lifestyle but should be around $25,000 to $50,000. It also helps show other income streams, such as rental properties, investment accounts, and side businesses. This will show the lender that even if you stop working, you still have a reliable cushion or other revenue sources to fall back on.
If you feel confident in your ability to make the mortgage payments, then purchasing a $500,000 home is a wise investment. The average home price in the US is $436,800, meaning many Americans will be looking for homes worth $500,000 or more. However, you shouldn’t take the risk if you don’t feel confident in your financial situation or your ability to pay the mortgage. You may be better off looking at cheaper starter homes or renting for a while you improve your situation. The last thing you want to do is get in over your head and end up going into foreclosure because that may ruin your future prospects for homeownership.
Buying a $500,000 home is an achievable goal for many people. However, you must be aware of all the associated costs before you begin your search. Purchasing a home is a major commitment and requires ongoing financial obligations beyond just the mortgage payment. So be sure to take a hard look at your finances and ensure you can afford the costs before applying for a loan.