The Income Required for a 400K Mortgage: What to Consider

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Mike Romano

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May 25, 2023

Mike Romano is a mortgage industry veteran with over 20 years of experience. His expertise spans mortgage technology, credit risk, and loan origination, and he has spoken at many mortgage and fintech conferences. He has a Bachelor's and MBA from the University of California, Berkeley and currently resides in Austin, TX. NMLS # 2515901

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    Home prices are on the high side right now. Depending on where you live, it can be better to create your home budget based on the average home prices in your area. Which, in turn, might lead you to a question such as, “What income is required for a 400K mortgage?”

    It’s a smart way to work, and some people prefer this sort of aspirational approach, even in a buyer’s housing market.

    If a house in the $400K range is your goal, we’ll help you gather some hard numbers based on factors like how much you’ve saved for a down payment, any other debts you’re carrying, and whether or not you’ll seek down payment assistance. 

    You’ll come away with a much better picture of the income you need to afford a $400K house and what you can do to reach your goal sooner. 

    One thing to note as you read this article: It may sound obvious, but it’s worth mentioning that if you purchase a house for $400K, you probably won’t have a full $400K mortgage. Assuming you make a down payment, this will reduce your actual mortgage loan amount. For example, if you make a $40K down payment on a $400K house, your mortgage loan will be $360K.

    Throughout this article, we include examples based on a variety of down payment amounts, from zero all the way up to $80K. For the sake of simplicity, all of our numbers are based on purchasing a home for $400K, regardless of the final mortgage amount.

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    Making a larger down payment is hands-down the best way to reduce your monthly payments and afford a more expensive house on your income. You could qualify for help to make this possible.

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      Disclaimer: This article is for informational purposes only and should not be considered as legal or financial advice. Please consult an attorney, mortgage lender, or CPA for guidance on your specific situation.

      What is the income required for a 400K mortgage?

      Based on a 30-year fixed rate mortgage and a 7.419% interest rate, the income required for a 400K mortgage is around $148,200. It’s possible to afford a $400K mortgage on less income, but this is a good ballpark figure based on best budgeting practices laid out by financial experts.

      Home cost$400,000$400,000
      Down payment$0$20,000
      Interest rate7.419%7.419%
      Mortgage amount $400,000$380,000
      Total monthly payment$3,458$3,101
      Estimated income required$148,200$132,900

      Numbers based on a standard 30-year mortgage and no additional debts.

      Calculating your a monthly payment on a 400K mortgage

      Although principal and interest makes up the bulk of your monthly mortgage payment, there are a few other costs which get wrapped into this as well. That way you make one payment each month and cover all the costs.

      Here’s what your monthly mortgage payment covers:

      • Mortgage principal
      • Mortgage interest
      • Property taxes
      • Homeowner’s insurance
      • Private mortgage insurance (PMI) if required

      Working with our examples above, your monthly mortgage payments would break down like this:

      Home cost$400,000$400,000
      Down payment$0$20,000
      Interest rate7.419%7.419%
      Mortgage amount $400,000$380,000
      Total monthly payment$3,458$3,101
      Principal and interest$2,775$2,636
      Property tax$200$200
      Homeowner’s insurance$50$50
      Private mortgage insurance$433$215

      Property tax varies by location, but not considerably so. Private mortgage insurance varies slightly as well. The numbers listed in this table are an average. 

      Also, keep in mind that you only have to pay private mortgage insurance (PMI) if your down payment is less than 20% of the purchase price. The PMI on your loan will automatically cancel once you have 22% equity in your home, and you can request to cancel it once you reach 20% equity.

      Other costs to consider

      Your mortgage payment takes care of all the fixed costs required for paying off your loan and keeping up with your property taxes. However, there are other costs you should keep in mind as you work out the income needed for a $400K house.

      Closing costs

      The big one is closing costs. Closing costs can be as much as $10,000, and sometimes more. You don’t have to pay closing costs in a lump sum up front, they get added to your mortgage loan. But they do effectively increase the price of your house, which ultimately increases your monthly payment.

      Maintenance and repairs

      It’s also a good practice to put money away every month for home maintenance and repairs. Inevitably, something on your house will break or you’ll want to make upgrades.

      You’ll have funds ready for these situations if you’ve treated home maintenance and repairs like a fixed expense and smartly squirreled money away each month. And you’ll be extra ready for homeownership if you set a monthly amount for these costs and build it into your home buying budget before you buy a house.

      What if you make a bigger down payment?

      As we mentioned at the start, a down payment is the best way to reduce the income you need to afford a $400K house. This is especially true if you can get your down payment over 20% of the purchase price, as this removes the PMI requirement, which can decrease your monthly payment by hundreds.

      Income required based on down payment size

      Home cost$400,000$400,000$400,000
      Down payment$20,000 (5%)$60,000 (15%)$80,000 (20%)
      Interest rate7.419%7.419%7.419%
      Mortgage amount$3,101$2,710$2,470
      Total monthly payment$380,000$340,000$320,000
      Estimated income required$132,900$116,143$105,857

      As you can see, the income needed to afford a $400K house decreases pretty sharply as the down payment goes up. However, these down payment amounts can be pretty staggering, especially at the $400,000 price point. It’s hard for many people to imagine coming up with that kind of cash. 

      This is where down payment assistance makes all the difference.

      Using down payment assistance to put your 400K house within reach

      How can down payment assistance (DPA) help you put a $400K house within your reach?

      The short, simple answer is that DPA increases your down payment amount, so you end up with a lower monthly mortgage payment or the ability to buy a more expensive house for the same monthly payment. 

      There’s also a lot more down payment assistance out there than you might think.

      Federal, state, and local governments, companies, and private organizations all sponsor down payment assistance programs. Some of them are available only in specific areas, such as state-sponsored programs. Other programs target households within certain income brackets.

      Some of these programs offer literally tens of thousands of dollars in assistance.

      The bottom line is that there are a lot of DPA programs, they offer a significant down payment boost, and most programs can be combined with any money you’ve already saved up for a down payment. So your hard work pays off even more.

      The only downside to these programs is that they’re difficult to find. This is where Stairs Financial can help. 

      Stairs connects you to qualified lenders who work with all the down payment assistance programs you might qualify for, then lets you compare your options side-by-side.

      Learn more.

      What about other debts? Can you still afford a 400K house?

      Existing debts will impact how much house you can afford. However, most Americans have some sort of debt, and having debt certainly does not mean you can’t buy a house. You just have to budget around it.

      Your budget: Following 28/36 rule

      Personal finance experts recommend using the 28/36 rule to build a budget that accommodates a mortgage payment and any other debt you have. 

      According to the 28/36 rule, it’s best if your housing expenses don’t exceed 28% of your gross monthly income and your total debts don’t exceed 36% of your gross monthly income.

      Of course, this is more of a guideline than an actual rule. You can flex it a bit, based on your financial situation and comfort level with a tighter budget. Some types of mortgage loans allow you to spend up to 50% of your income on housing expenses.

      For the sake of simplicity, though, we’ll closely follow the 28/36 rule. If you wanted to find out how much monthly mortgage payment you can afford, simply multiply your gross monthly income by .28 (28%). That gives you an exact number for following the 28/36 rule.

      Another way to do this is to start with a house price, such as $400,000, use an online mortgage calculator, and divide that payment by .28 (28%) to find out how much gross monthly income you’d need to afford that payment.

      Strictly following the 28/36 rule, here’s how much you’d need to make to buy a $400K house, with various down payment amounts:

      Home cost$400,000$400,000$400,000$400,000$400,000$400,000$400,000
      Down payment$0$5,000$10,000$15,000$20,000$25,000$30,000
      Mortgage amount$400,000$395,000$390,000$385,000$380,000$375,000$370,000
      Monthly payment$3,458$3,418$3,378$3,338$3,101$3,064$3,027
      Required salary$148,200$146,486$144,771$143,057$132,900$131,314$129,729

      Bending the 28/36 rule: 3 examples of affordability for a 400K house

      The numbers we gave above follow the 28/36 rule strictly. But it’s totally reasonable to bend the 28/36 rule if your budget can tolerate a bit more total debt. It’s up to you to decide if you can work outside the 28/36 rule, but here are some examples of affordability for a $400K house that fall outside the bounds of the rule:

      Home cost$400,000$400,000$400,000
      Down payment$15,000$15,000$15,000
      Mortgage amount$385,000$385,000$385,000
      Interest rate7.419%7.419%7.419%
      Monthly mortgage payment$3,338$3,338$3,338
      Other debts$267$0$110
      Debt distribution35/4050/5040/42
      Income required $108,150$80,112$98,514

      As you can see, a little adjustment to the 28/36 rule can make a $400,000 house look a lot more affordable. Just be sure to bend the rules responsibly and consult with experts like your mortgage lender or accountant to get advice specific to your situation. 

      Adjusting your budget

      Sadly, bending the rules isn’t always enough. In some cases, you just may not have enough income required to buy that 400K house on your dream list. You may have to adjust your home price to bring things within range. 

      Find out how much you’d need to make to buy a $300K house, and see if that brings your goals into focus.

      Qualifying for down payment assistance

      Whether you’re looking to buy a $300K, $400K, or even $500K house, down payment assistance will make the whole process a lot easier.

      Stairs Financial connects you to qualified lenders who work with all the down payment assistance programs you might qualify for, then lets you compare your options side-by-side.

      Learn more.

      Find up to $15,000 towards a home 🏠

      Compare local down payment assistance and find a mortgage, fast.

      Where do you want to buy?
        Search by ZIP code, address, city, county, or neighborhood
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