What’s the Salary to Afford a 500K House? Know Your Options

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Malcolm-Wiley Floyd

Jun 8, 2023

CEO and Co-Founder of Stairs Financial, a YC-backed startup that connects first-time home buyers with down payment assistance programs across the US. Malcolm-Wiley studied economics at Harvard and is a licensed mortgage broker.

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    $500K might be a relatively hefty price tag for a house, but it’s not an entirely uncommon one. If houses where you live or where you want to live tend toward this price point, it’s time to work out the salary to afford a 500K house.

    It might seem intimidating, but there are several ways to stretch your budget without putting yourself in a precarious financial position. Keep reading to find out how close you are to the salary needed for the mortgage on a $500K house (you might be there already!).

    Move the goal post closer with down payment assistance

    Making a down payment is the main hurdle prospective home buyers struggle to get over. But the good news is that you could qualify for assistance to help you get into a home sooner.

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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.

      Salary to afford a 500K house: The basics

      The salary to afford a 500K house ranges between $101,040 and $180,429, assuming a 30 year mortgage, a 7.48% interest rate, and down payment between zero and $15,000. We’ll talk about ways to expand this range, but this is a good baseline for setting expectations and budgeting for buying a $500,000 house.

      Income for a $500Khouse
      Home price$500,000$500,000$500,000$500,000$500,000
      Down payment$15,000$15,000$15,000$15,000$15,000
      Interest rate7.48%7.48%7.48%7.48%7.48%
      Monthly payment$4,210$4,210$4,210$4,210$4,210
      Percentage monthly income for payments28%33%36%40%50%
      Required income$180,429$153,090$140,333$126,300$101,040

      Numbers based on a standard 30-year mortgage. 

      As you can see from this table, one of the major factors in calculating the salary to afford a $500K house is determining how much of your monthly income you’re able to dedicate to your mortgage payment.

      One caveat here: our chart shows how much house you can afford if you dedicate 50% of your monthly income to your mortgage payments. But just because you can doesn’t necessarily mean you should. There are other factors at play, like your existing debts. We’ll walk you through this in more detail in the next section. 

      How much of your monthly income to spend on mortgage payments

      Personal finance experts recommend following the 28/36 rule to determine how much of your monthly income you should spend on a $500K house, or a house at any other price for that matter. 

      Following the 28/36 rule means you dedicate 28% of your monthly income to your mortgage payment and 36% of your monthly income to your total debt load, including your mortgage payment and any other existing debts.

      For example, as we show in the table above, if you want to keep your mortgage payments capped at 28% of your monthly income, you need a salary of $182,143 to purchase a $500K house with $10,000 down. 

      According to the 28/36 rule, this leaves you with $1,214 each month that you could use to pay other debts, bringing your total debt payments to 36% of your monthly income. 

      The 28/36 rule isn’t set in stone. It can be nudged one way or the other, but it’s a good starting point for budgeting to buy a house. Also, following the 28/36 rule leaves plenty of room in your budget to absorb unexpected expenses and save for other things.

      However, some mortgage loans allow you to spend up to 50% of your monthly income on your mortgage payments. So, as far as lenders are concerned, it’s possible to go pretty far outside the 28/36 rule.

      Just be sure you have plans in place to keep yourself above water if you’re going to spend 50% of your monthly income on your mortgage. Breaking the 28/36 can be okay, as long as you break it responsibly.

      How debt affects the salary needed for a 500K house

      Your existing debt plays a big part in the salary needed for the mortgage on a 500K house. Buying a house is a wise purchase, but a mortgage loan is still debt, and it’s unwise to have more than 50% of your monthly income dedicated to paying debt. That’s a very precarious financial position.

      So, depending on your existing debt load, you may have to make some adjustments. 

      Here are a few examples of how you might structure your budget to afford a $500,000 house with other debts:

      Affording a$500K housewith debts
      Home price$500,000$500,000$500,000
      Down payment$15,000$15,000$15,000
      Interest rate7.48%7.48%7.48%
      Monthly mortgage payment$4,210$4,210$4,210
      Other debts$267$526$110
      Debt distribution38/4044/5041/42
      Salary needed$134,310$113,664$123,429

      As you can see, even with relatively large debt payments, buying a $500K house can be totally manageable without going all the way to the 50% line.

      How a down payment affects the income needed for a 500K house

      Another powerful way to increase your home buying budget is to make a larger down payment. A larger down payment reduces how much you must borrow to buy your home, and in turn reduces how much income you need. 

      Here’s how increasing your down payment affects the income you need for a $500K house.

      Home price$500,000$500,000$500,000$500,000$500,000$500,000$500,000
      Down payment$0$5,000$10,000$15,000$20,000$25,000$30,000
      Monthly payment$4,331$4,290$4,250$4,210$4,170$3,884$3,846
      Required salary$185,614$183,857$182,143$180,428$178,714$166,457$164,829

      These numbers are based on following the 28/36 rule. If you make a larger down payment and increase how much of your monthly income you allocate to your mortgage payment, you’ll exponentially increase your buying power.

      Saving up for a down payment can be challenging, though. Many buyers delay purchasing a house for a long time because they don’t have a large enough down payment. Down payment assistance makes a molehill out of this down payment mountain.

      Making your income go further with down payment assistance

      The first, and maybe most important, thing to know about down payment assistance (DPA) is that there’s far more of it out there than you might realize. Federal, state, and local governments offer DPA programs. Even banks and private organizations offer down payment assistance.

      Many down payment assistance programs can be combined as well. So it’s entirely possible to get thousands or even tens of thousands of dollars to help you buy a home.

      These are the most common types of down payment assistance.

      Grants

      Grants are exactly what they sound like. When you get a down payment assistance grant, you can use the money to make a down payment on a house, and you don’t have to pay it back. 

      This isn’t always the case, but grants often have restrictions on how you can use the money. Most grants can only be applied to a down payment, though some grants can be used to cover closing costs or make initial home improvements.

      Be sure to read the fine print so you don’t mistakenly think your grant money is flexible when in fact it’s restricted to making a down payment.

      Down payment assistance loans

      DPA loans are also exactly what the name implies: a loan you can use to make the down payment on a house. Most DPA loans have lower interest rates than a mortgage loan, so using a loan to boost your down payment is truly beneficial.

      Many down payment assistance loans also have options for reducing how much of the loan you must pay back. For instance, some loans only require you to repay a certain percentage of the money so long as you live in the purchased home for more than five years.

      Just as with down payment assistance grants, read the fine print so you can maximize the value of your loan.

      Deferred repayment loans

      On a standard DPA loan, you start making payments on the loan as soon as you start making payments on the mortgage. With a deferred repayment loan, you don’t have to make payments right away. 

      Payments might begin after you’ve owned the home for a certain number of years, have a certain amount of equity in the house, sell the home, or some other trigger point.

      The benefit of this type of down payment assistance loan is that it gives you time to increase your income or decrease your mortgage payments before you start repaying. This can be a very powerful tool if you budget carefully.

      Tax credits

      Tax credits don’t give you any money at the time of closing, and they don’t lower your mortgage payments. A homebuyer tax credit, such as the proposed Biden $15,000 First-Time Homebuyer Tax Credit, simply reduces your tax burden for the year you buy the house.

      In most cases, homebuyer tax credits are refundable, which means you’ll get a tax refund if the tax credit reduces your tax bill below zero. Tax credits may not be as useful as other types of down payment assistance at the time you purchase your house, but they can be quite helpful for managing other costs (like home repairs) further down the road. 

      Adjusting your budget: The income required for a less expensive house

      Whether you ran the numbers and decided a $500K house is a bit more than you’re willing to take on, or you just want to maintain a bit more flexibility in your budget, there’s absolutely nothing wrong with purchasing a less expensive house.

      Here are some great resources for budgeting based on a smaller income or a less expensive house:

      Learn more about down payment assistance

      Even if you have plenty of room in your budget to reach the $500K price point, a larger down payment will make your financial life easier. And a larger down payment can bring that $500K mark within reach.

      For this, down payment assistance (DPA) is one of your best options. 

      There’s a good amount of DPA available. The problem is that it’s difficult to find information about DPA programs because it’s haphazardly spread around the internet, with very little organization.

      Stairs Financial fixes this problem by bringing all the information together in one place.

      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 about your down payment assistance options and how Stairs can help.

      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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