What salary do you need to buy a $1 million house?

Homes priced at $1 million or more are no longer exclusively for wealthy homebuyers. In June, 8.5% of U.S. homes were priced at $1 million or more, the highest share ever, according to Redfin. This is up from 7.6% a year earlier.

And homes priced at $1 million or more make up more than 20% of inventory in Boston, New York, Seattle and several California cities: Anaheim, Los Angeles, Oakland, San Diego, San Francisco and San Jose. Million-dollar-plus homes also abound in other places, including Colorado, Washington, D.C., Florida, New Jersey and Texas.

But with mortgage rates remaining high in 2024 (the average mortgage rate on a 30-year fixed was 6.88% on Thursday), you may wonder if you can even afford a $1 million home. Well, all you need is an annual salary or household income of $268,933 to afford it comfortably.

How much does a $1 million a month house cost?

Is your salary enough to buy a $1 million house? This question assumes that you do not have $1 million in available cash or equity in another home that you are considering selling. Instead, you will have to take out a mortgage. The salary you’ll need depends on the term of the mortgage, the interest rate and the size of your down payment.

Let’s say you choose a 30-year fixed-rate mortgage. You’ll likely make a down payment of 20% or more to avoid the additional cost of private mortgage insurance (PMI).

One guide for calculating how much home you can afford is a generally accepted rule of thumb known as the 28/36 rule, which states that your mortgage payment should be 28% or less of your monthly gross income. Your mortgage payment is made up of principal, interest, taxes and homeowners insurance – a quartet of costs often called PITI.

Since taxes and insurance vary greatly by location, in this example we’ll just look at principal and interest. If you secure an interest rate of 6.00% or higher on an $800,000 loan ($1 million home with a 20% rate), you’ll pay $5,258 per month. And if the home is worth more than $1 million, your payment will be higher.

Imagine you’re looking for a home in San Diego, where the typical home is priced at $1,003,863. Your monthly mortgage payment on this San Diego home, after 20% down, with a 30-year fixed-rate mortgage at 6.88% interest, would be $5,278:

• Main: Fixed-rate mortgages typically amortize, meaning your total payments remain the same, but the amount applied to interest and principal typically adjusts monthly. Less goes toward interest as the debt is paid off, and more goes toward the principal. In the first month—November 2024—your monthly payment will include approximately $674 in principal.
• Interest: At an average interest rate of 6.88%, your monthly mortgage payment in November would include about $4,604 in interest. If you keep the loan for the full 30-year term, by the last month of October 2054 your interest payment will be about $30. Your principal payment will be $5,248.

To comfortably afford a $1 million home, you’d need to earn $18,850 a month.

Now you can calculate the monthly salary or income needed to afford a $1 million home. Let’s go back to the 28/36 rule: Your monthly housing payment should be 28% or less of your monthly gross income. This means that in order to afford a monthly payment of $5,278 for a home in San Diego, you must have a monthly income of at least $18,850 or an annual income of $226,200.

You can calculate it like this:

• Monthly payment x 100 / 28%
• $5,278 x 100 = $527,800 / 28 = $18,850
• $18,850 x 12 months = $226,200

How to lower your mortgage payment

To make it easier for you to afford a $1 million home, here are some tips for reducing your monthly mortgage payments.

Make a larger down payment

Perhaps you could afford a down payment of, say, $250,000. This will reduce your monthly payment to approximately $4,955, a savings of $323 per month. Over a 30-year loan, you’ll pay more than $65,000 less in interest.

Reduce the loan term

If your mortgage has a term of, say, 20 years instead of 30, your monthly loan payments will go up, but you’ll pay less interest over the life of the loan. By taking out a 20-year mortgage instead of a 30-year mortgage on a $1 million home, you could save more than $300,000 in interest, depending on the interest rate.

Make one or more additional payments annually

This option is similar to shortening the term of your loan. Overall, you’ll save money and have more flexibility because you won’t have to pay higher monthly payments on a shorter loan. One extra payment of $5,278 each year will save you hundreds of thousands of dollars in interest payments over the life of the loan. This will also reduce the time required to repay the loan by several years.

Shop Around for a Lower Mortgage Rate

The lower your mortgage rate, the lower your monthly payment. Shop around and compare mortgage lenders to find the best mortgage interest rate. The rates charged by lenders can change daily, so it’s important to lock in a rate that you think is fair for the home you’re buying.

How we track mortgage rates

The national and state averages above are provided unchanged through the Zillow Mortgage API, assuming an 80% loan-to-value (LTV) ratio (i.e., a down payment of at least 20%) and an applicant’s credit score in the 680 range –739. The rates received represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may differ from advertised rates. © 2024 Zillow, Inc. Use subject to Zillow’s Terms of Use.