How Much Do I Need To Make To Afford A $600K Home?

If you’re looking to buy a home right now, you know that in many markets, supply is challenging, and it’s driven home prices higher. The median home price is well under $600,000, but that may not be the case in some higher-cost areas. You may wonder about the income needed to afford a $600K mortgage.

The mortgage you can afford is dependent on a number of factors that we’ll get into throughout this article. As you read on, keep a couple of things in mind: Buying a home at any price is exciting. Also, even if you can’t afford the home of your dreams right now, there’s no reason to think you can’t get there down the line.

Quick Answer: What Income Do I Need To Afford A $600K Home?

The income needed to qualify to buy a $600,000 house depends on the loan option being used and the size of your down payment, so you’ll find the range here is fairly wide: $75,728.14 – $157,050.33.

What Factors Determine How Much You Can Afford? 

Because there are so many variables that determine how much someone can afford, we recommend checking out our Home Affordability Calculator. You can put in your own information and even reset it as much as you want to change inputs and see how it impacts your affordability. When qualifying you for a loan, lenders look at the following:

• Down payment: One of the biggest factors in determining how much you can afford is how much you put down at closing. The bigger your down payment, the lower your loan amount, which brings down your monthly payment. You may hear lenders refer to this as your loan-to-value ratio (LTV). This merely looks at the size of your loan relative to the value of your home. It’s the inverse of your down payment or equity amount. So if you have a 10% down payment, that’s equivalent to a 90% loan-to-value ratio.
• Closing costs: Closing costs are the fees associated with finalizing your loan. Some are paid to lenders while others go to the title agency or the local government. You may pay your real estate agent as well depending on agreements with them and the seller. Total closing costs are generally 3% – 6% of the purchase price.
• Mortgage loan: The type of mortgage that you qualify for is also important because different loan options have different standards in terms of how much debt you’re allowed to take on when you qualify. The type of interest rate also matters because adjustable-rate mortgages (ARMs) are sometimes qualified based on a higher rate than the initial one you receive to ensure you can handle potential payment changes. Finally, the longer the loan term, the more you’ll be able to afford based on a smaller monthly payment.
• Interest rates: You’ll be able to afford a higher home price at lower interest rates than you could if they were higher because it changes the monthly payment. You can get a fixed- or adjustable-rate mortgage. ARMs have slightly lower initial interest rates than fixed-rate mortgages, but you’re subjecting yourself to market conditions when the rate adjusts up or down.
• Credit score: Your credit score impacts the types of mortgage loans you can qualify for. But along with your down payment, it also has a major effect on the interest rate you get. The higher your score, the lower your rate may be.
• Debt-to-income ratio (DTI): DTI reflects the percentage of your pretax monthly income that goes toward the debt payments you have to make. In some cases, lenders will limit the percentage of income that can go toward your mortgage payment and in others, they only look at your total debt payments. Either way, if you can limit your existing debt when qualifying for a mortgage, you’ll be able to afford a bigger payment.
• Homeowners insurance: Your home is likely your biggest asset, so it’s a good idea to protect it anyway, but lenders will require that you at least have enough coverage to replace or rebuild it in the event of major property damage. You can also add coverage to protect personal property and shield you from liability if someone injures themselves at your home.
• Property taxes: These pay for local roads, public schools and other city services like garbage collection. Homeowners insurance and property taxes are often included as part of your mortgage payment in an escrow account, but even if they aren’t, the costs need to be accounted for.
• Homeowners association (HOA) fees: Depending on the neighborhood, you may be subject to HOA fees that pay for things like exterior maintenance, common areas like a pool or tennis courts, and services not handled by the local government (garbage collection, snow removal, etc.).
• Maintenance: Even in the newest or best-cared-for houses, things eventually break. It’s generally recommended to set aside 1% – 3% of the purchase price every year for maintenance, depending on the age and condition of the home.
• Additional assistance: The down payment is often the most daunting hurdle faced by many first-time home buyers. If you qualify based on income, there are often resources for grants as well as traditional, deferred or forgivable loans functioning as down payment assistance (DPA) from lenders or local authorities.
• Location: While this doesn’t impact the size of your budget, you may find that your dollars go further in some places and buy you less in others. You may be able to buy a colonial in one of the cheaper states to buy a house and find the same budget gets you nowhere in Boston.