How Much Income Is Needed for a $500,000 Mortgage?

By Timothy Moore · July 10, 2024 · 10 minute read

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How Much Income Is Needed for a $500,000 Mortgage?

The average homebuyer needs an annual salary of about $150,000 to afford a $500,000 mortgage. However, if you have a lot of debt to your name, such as student loans or credit card debt, you may need to lower your max home price.

Several factors beyond income affect how much home you can afford and how much lenders are willing to let you borrow. These include your debt-to-income (DTI) ratio, your employment, your credit score, and the size of your down payment. Below, we’ll analyze the income needed for a $500,000 mortgage and help you determine how much house you can afford.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Income Needed for a $500,000 Mortgage

Mortgage lenders examine more than just your income when approving you for a mortgage. For instance, they’ll also review how much money you have saved to ensure you can cover closing costs, which generally range from 3% to 6% of the loan amount. Assuming no down payment, closing costs for a $500,000 home would amount to $15,000 to $30,000.

Mortgage lenders will also consider:

•   How big your down payment is

•   Your credit score

•   Your employment history

•   Your current debts

Lenders will also want to ensure you make enough money (and have low enough debts) to afford your monthly payments. So how much income do you need for a $500,000 home mortgage loan? Experts often recommend using the 28/36 rule to figure this out. According to this rule:

•   Your annual housing costs should be no more than 28% of your annual income. Someone who earns $150,000 a year could spend up to $3,500 per month on housing costs before hitting the 28% mark.

•   Your total debts — the mortgage plus any other debts, such as student loans, car loans, and personal loans — should not exceed 36% of your annual income. So if you’re drowning in credit card debt, you may need to lower your expectations on how much house you can afford, even if you make $150,000.

Having trouble determining if you make enough money for a $500,000 home? Use our home affordability calculator to figure it out.

How Much Do You Need to Make to Get a $500K Mortgage?

By the 28/36 rule, you need to make $150,000 a year to afford a $500,000 mortgage. However, if you have a significant amount of debt, you may need to aim for a lower mortgage amount to keep your total debt below 36%.

Other factors can impact how much you need to make to get a $500,000 mortgage, including:

•   Property taxes in that city and state

•   The cost of homeowners insurance

•   Current interest rates

•   The type of mortgage loan you’re getting

•   The amount of money you have for a down payment

What Is a Good Debt-to-Income Ratio?

In general, the max debt-to-income (DTI) ratio for buying a house is 36%. Debt should account for no more than 36% of your monthly income. That said, there are scenarios where lenders will allow a higher DTI. For instance, DTI ratios can go as high as 43% for a qualified mortgage. In some cases, Fannie Mae might allow for a mortgage loan that would put a borrower at a 50% DTI ratio.

What Determines How Much House You Can Afford?

Calculating the mortgage that you can afford involves a lot of factors, such as:

•   Income: No surprises here. How much money you make has a major impact on how much you can spend on a mortgage. Don’t forget: It’s not only the cost of the house itself. You also need to factor in the interest rate, private mortgage insurance (usually required if your down payment is less than 20%), homeowners insurance, and property taxes.

•   Debt: In addition, you need to factor in how much you spend each month on debt, such as credit cards, student loans, and car loans. On top of debt, factor in other monthly expenses, such as health care costs, grocery bills, and utilities.

•   Credit score: If you have a low credit score, it will be harder to get approved for a mortgage, regardless of your income. If you are approved for a mortgage with bad credit, you’ll likely have a high interest rate, which means larger monthly payments. This might mean you need to aim for a less expensive home.

•   Where you live: Your location also impacts how much house you can afford. A $500,000 home in an area with a low cost of living is likely to be much larger and well cared for than a home in an urban or coastal area, where housing costs are much higher. Use our guide to the most affordable places to live in the U.S. to help keep housing costs down.

What Mortgage Lenders Look For

During the mortgage preapproval process, lenders will consider a number of factors. The review is typically more intense than the process of getting a credit card or personal loan. For instance, mortgage lenders will want to review:

•   Your income (they typically want to see stable, predictable income, though it is possible to get a mortgage without regular income) and assets

•   Your credit history (the credit score needed to buy a house is 620 for most mortgage types)

•   The size of your down payment (the larger the down payment, the lower your monthly payments over the loan term)

•   Any existing debts, such as personal loans, car loans, student loans, and credit cards

$500,000 Mortgage Breakdown Examples

There are a number of factors that impact how a $500,000 mortgage breaks down, including the interest rate (fixed or adjustable) and loan term (15 or 30 years, for example). The cost of property taxes and homeowners insurance where you live also impact your mortgage; in fact, we advise using a mortgage calculator with taxes and insurance factored in when determining how much you can afford.

To understand how monthly payments on a $500,000 mortgage can vary based on interest rate and loan term, consider the following examples:

•   A $500,000 loan with an interest rate of 6.00% over 30 years would cost $2,998 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 7.00% over 30 years, would cost $3,327 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 6.00% over 15 years would cost $4,219 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 7.00% over 15 years would cost $4,494 per month before taxes and insurance.

As you can see, the monthly payments for a 15-year loan at these interest rates would require that you earn more than $150,000 in order to keep your payments below 28% of gross income.

Pros and Cons of a $500,000 Mortgage

A $500,000 mortgage has both pros and cons to consider.

Pros:

•   You can afford a larger home, ideal if you have multiple children.

•   A $500,000 home is likely to require fewer renovations and updates.

Cons:

•   It can be harder to qualify for a mortgage of this size.

•   Monthly payments are much higher than a smaller mortgage.

How Much Will You Need for a Down Payment?

Previously, families strived to save 20% for a down payment on a house, but that’s not always a practical approach in today’s housing market. You can get a conventional mortgage loan with much less down, depending on the lender.

You can also consider alternative mortgage loan types, which have different down payment requirements.

•   FHA loans only require 3.5% down; for a $500,000 house, that’s $17,500. However, FHA limits are just below $500,000 for most parts of the country ($498,257 in 2024), so you’d need to put enough down to keep the borrowed amount below that threshold.

•   VA loans (from the U.S. Veterans Administration) and USDA loans (from the U.S. Department of Agriculture) allow you to get a mortgage with no money down, but these loans are only available to select borrowers.

Can You Buy a $500K Home With No Money Down?

It’s possible to buy a $500,000 home with no money down if you qualify for a VA loan or USDA loan. However, only veterans, certain service members, reservists, and surviving spouses can qualify for a VA loan, and USDA loans are limited to certain properties in rural and some suburban areas.

Can You Buy a $500K Home With a Small Down Payment?

You may be able to buy a $500,000 home with a small down payment through an FHA loan (assuming you put down enough to borrow below the FHA limit). Some conventional mortgage lenders will allow qualified first-time homebuyers for as little as 3% down.

Recommended: Home Loan Help Center

Is a $500K Mortgage With No Down Payment a Good Idea?

If you don’t have the money saved up for a down payment or want some liquid funds in your savings account for emergencies, it might be OK to get a $500,000 mortgage with no down payment. Keep in mind, however, that you’ll have no equity in the house at the start of the term. You may also be required to carry private mortgage insurance when you make a small down payment (or no down payment at all).

Can’t Afford a $500K Mortgage With No Down Payment?

Here’s how to work toward making your monthly mortgage payment more manageable.

Pay Off Debt

Wait to take on a mortgage loan until you’ve wiped out some of your bigger debts. For example, getting rid of a monthly student loan payment or credit card payment can free up more funds to put toward a higher monthly mortgage payment.

Look Into First-Time Homebuyer Programs

Research various first-time homebuyer programs if this is the first time you’re buying a house. For instance, if you can come up with a 3.5% down payment, you can possibly get an FHA loan for (nearly) $500,000.

Build Up Credit

You can qualify for a lower interest rate on your mortgage if you take care of your credit score. Focus on making on-time bill payments, reducing your credit utilization, and paying down debts. Remember: A lower interest rate means lower monthly payments.

Start Budgeting

If the monthly payment for a $500K mortgage with 0% down seems too tight right now, find ways to add more flexibility to your budget. Take up a side hustle to increase your income or cut unnecessary expenses from your spending, such as streaming services or dining out.

Mortgage Tips

Hoping to buy a $500,000 home this year? We’ve got several mortgage qualification tips to help.

For instance, make sure you know the difference between fixed- and adjustable-rate mortgages and when it might make sense to refinance your mortgage, and always shop around by getting prequalified with various lenders to ensure you get the best deals. Focus on your credit score before applying, but once you’re approved for a mortgage, don’t open any new credit accounts until after you close on the house.

The Takeaway

The income needed for a $500,000 mortgage depends on several factors, including your debt, down payment, and credit score. That said, adhering to the 28/36 rule means you’d need to make about $150,000 a year to get a $500,000 home.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much income do I need for a $500K mortgage?

By following the 28/36 rule, you’d need an annual income of $150,000 for a $500,000 mortgage. However, if you have significant debts, you may need to aim for a lower home price, even with a high household income.

Can I afford a $500K house on $100K?

It would be hard to afford a $500K house on an annual income of $100,000. The only way it might be doable is to make a very large down payment, thereby reducing the amount of money you need to borrow and, as a result, your monthly payments.

Can I afford a $500K house if I make $200K?

A $200,000 salary should be more than enough for a $500,000 home, unless you have significant debt.


Photo credit: iStock/cofotoisme

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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