What Income Is Needed for a $500K Mortgage? How To Afford Your Dream Home (2024)

Before buying a house, most people want to make sure they can afford the monthly mortgage. Even if they’re not overly concerned with the financial details themselves, a mortgage lender won’t offer a home loan unless they think the borrower can handle repaying it. That makes your income a key component in the homebuying picture.

The income you need to afford homeownership hinges on how much the house in question costs. The mortgage payment on $500k homes is very different from, say, houses that cost $300,000, or $1 million.

Because a half-million dollars is fairly close to the median sale price of a house across the country, we’ll focus on that today. Let’s find out about the income needed for a $500k mortgage, plus how you can impact your monthly payment with factors like a bigger down payment.

Vault’s Viewpoint

• With 20% down and a 7.18% interest rate on a 30-year fixed-rate loan, the mortgage payment on a $500,000 house would be roughly $2,710 a month.
• The income needed for a $500k mortgage depends on how much you put down, your credit score and other factors specific to you.
• Since many lenders don’t want more than 28% of a person’s income to go toward their mortgage debt, borrowers will generally need an annual combined household income of at least $120,000 to buy a $500,000 house.

Salary Needed to Afford a $500K House

For starters, we should clarify that the income needed for a $500k mortgage is different from the income needed for a $500,000 house. That’s because almost all homebuyers (unless they’re using a VA or USDA loan) are required to put up a down payment, and the amount you put down shrinks the size of mortgage you need.

How Down Payments Affect Mortgage Amounts

If you’re buying a $500,000 home and you put 5% down ($25,000, since $500k * 0.05 = $25k), you actually only need a mortgage for $475,000 ($500,000 – $25,000).

If you put more down, your mortgage shrinks, and your monthly payments do, too. Let’s say you put 10% down. The mortgage payment on the $500k house gets smaller because you’re borrowing less. With 10% down, you pay $50,000 ($500k * 0.10 = $50k) on the front end. That leaves you with a $450,000 ($500k – $50k) home loan.

If you’re trying to figure out how much income a $500k house requires, start with figuring out how much you have saved up to put down. The bigger your down payment, the less you’ll need to borrow—and, as a result, the lower your income can be.

That said, don’t wipe out your savings. You’ll also need money for closing costs. Plus, you’ll want to have a little saved up for home maintenance costs and emergencies once you get your keys.

Applying the 28/36 Rule to the Remaining Mortgage Amount

After you figure out how much you can put down, you can start calculating to determine the income needed for a $500k mortgage.

Many financial experts apply a specific benchmark to determine home affordability: the 28/36 rule. It dictates that you shouldn’t allocate more than 28% of your monthly income to housing costs, and should pay no more than 36% of that income toward your overall debt (your mortgage plus car loans, student loans, credit card debt, etc.).

Assuming you have your other debt under control, we can focus on the 28% piece. We applied the following equation to give you the table below:

Annual income / 12 = Monthly income * 0.28 (28%) = Monthly mortgage maximum

Next, you can figure out the overall mortgage amount you can afford using a mortgage calculator. If you put 20% down on a $500,000 house, you pay $100,000 ($500k * 0.20) upfront for your down payment. After this initial payment, you’d borrow $400,000 ($500k – $100k) for your mortgage.

Applying a 7.18% interest rate—the current average on a 30-year fixed-rate mortgage—the principal and interest on a $500,000 house (needing a $400,000 mortgage after the down payment) would be $2,709.74.

From our table above, we can see that to satisfy the 28/36 role, someone would need to have an income of $120,000 or more to afford that mortgage payment on a $500k house.

But as we’re talking about how much income a $500k house requires, a few other things are worth considering:

• You can buy a house with someone else (e.g., a partner, spouse, family member) and combine your incomes. If you make $65,000 a year and they make $55,000, you could likely still qualify for a mortgage on a $500,000 home with 20% down.
• Lenders usually consider other costs—like private mortgage insurance (PMI), which you need to pay if you put less than 20% down, and home insurance—when determining if you can afford your monthly mortgage payment.
• The size of your down payment affects the size of your mortgage, and consequently, the amount of income needed for a $500k mortgage.

Where Can You Find a $500K House?

If coming up with $120,000 of income a year—let alone a 20% down payment of $100,000—sounds nearly impossible, don’t worry. The National Association of Realtors (NAR) reports that median home prices are well below that in most counties across the country. The areas where homes cost a median price of $500,000 or above are mostly clustered along the coasts.

The NAR analyzed median home sales prices in Q4 2023 and found that the following areas fall around the $500,000 price point:

• Asheville, NC: $456,600
• Austin-Round Rock, TX: $481,200
• Boise City-Nampa, ID: $477,600
• Burlington-South Burlington, VT: $471,100
• Colorado Springs, CO: $460,400
• Durham-Chapel Hill, NC: $468,300
• Eugene, OR: $465,400
• Greeley, CO: $484,00
• Las Vegas-Henderson-Paradise, NV: $450,400
• Manchester-Nashua, NH: $485,300
• North Port-Sarasota-Bradenton, FL: $510,000
• Ogden-Clearfield, UT: $475,100
• Phoenix-Mesa-Scottsdale, AZ: $459,600
• Portland-South Portland, ME: $506,100
• Providence-Warwick, RI-MA: $460,900
• Provo-Orem, UT: $510,500
• Raleigh, NC: $459,900
• Sacramento-Roseville-Arden-Arcade, CA: $527,100
• Salem, OR: $452,700
• Salt Lake City, UT: $542,200
• St. George, UT: $537,600

How to Qualify for a $500K Mortgage

Different lenders have different requirements for different loans. And to make matters even more complicated, many lenders offer loan programs backed by entities other than their own financial institution. You can get a mortgage backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) or Department of Veterans Affairs (VA), for example.

All of that said, lenders are generally trying to determine the same thing: can you afford the home loan, and are you likely to pay it back? To decide if you can manage the mortgage payment on a $500k house, they’ll usually want to see that you:

Have Sufficient Income

Lenders generally don’t want more than 28% of your monthly income to go toward housing.

As we explored above, when you’re applying that rule, the income needed for a $500k mortgage depends on the down payment you pay.

If you put 20% down and borrow $400,000 with a 30-year fixed-rate loan, you’ll need a combined annual household income of about $120,000. If you put 5% down and borrow $475,000, you’ll need closer to $140,000 annually to meet the 28% benchmark.

Meet the Credit Score Requirement

Your credit score tells lenders how good you’ve been at managing past debt. Most lenders want to see a credit score of 620 or above, but you might be able to buy with a score lower than that. FHA-backed mortgages allow for a credit score of 580 or above if you put 3.5% down, or 500–579 with 10% down.

Have Other Debt Under Control

The 28/36 rule says that you should put no more than 28% of your income toward housing costs, and no more than 36% toward your mortgage plus other debts.

Let’s lean on our previous examples of using a $120,000 annual salary ($10,000 monthly income) to manage a mortgage payment on a $500k house.

Assuming you’re putting 28% of your income toward housing, that leaves you 8% for other debts (36% – 28%). 8% of your monthly income is $800 ($10,000 * 0.08). That means you shouldn’t be paying more than $800 a month toward all of your other debs.

If you have a significant amount of other debt—whether that’s a large credit card balance or a hefty chunk of student loans—work on paying that off before you apply for a mortgage.