5 Profitable Ways to Afford a Million Dollar Home

You’ve got a terrific job that provides you with a steady paycheck.  On top of that, you have very little debt and a nice amount of cash saved in the bank. If you’re also beginning a new home search, it’s natural to wonder whether you have the salary to afford a $1 million home. You may also be wondering about the average mortgage on a million-dollar house. In this article, we’ll look at ways you can afford to buy a million-dollar home and things to consider if you do.

More people are becoming millionaires every year. So the idea of the ridiculously wealthy being the only ones who can own a million-dollar home is becoming obsolete. Million Dollar Mansions are also becoming more prevalent in cities across the nation. Owning one is no longer strictly reserved for millionaires.

Someone may want to own a million-dollar home for any number of reasons. These homes are usually spacious and include unique home features like a gym, an in-home movie theater, or a large patio and pool area. These houses also tend to be more secluded, allowing for a higher level of privacy.

Can Afford A Million Dollar Home:

1. Target your Annual Salary Income

Generally speaking, if you want to buy a million dollar home. You’ll need at least $225,384 in annual household income to make the payments. A person’s down payment and interest rate determine how much money you need to put down on a house.

For a small down payment, you’ll need to earn nearly $300,000 a year to cover your housing costs, but for a large one, you’ll only need to earn about $207,000.

According to the “28/36 rule,” you should not spend more than 28 percent of your gross monthly income on housing costs or 36 percent of your total debt payments.

2. Set a Goal to Acquire a Jumbo Loan

Your ability to gain loan approval for a loan on a million-dollar house is influenced by several requirements; a down payment and closing costs of approximately $224,223; a credit score of at least 700; and savings to cover 6-12 months of mortgage payments.

Because it’s more than the maximum loan amount allowed in your area, your mortgage will likely be considered a jumbo loan. Normally, the cap is $510,400, but in some expensive markets, it rises to $765,600. Jumbo loans have more stringent requirements than conventional or government-backed mortgages, as you might expect.

You might also consider these factors:

Downpayment Size

Keep in mind that the total amount you can borrow with most conventional home loans is capped. According to Bankrate, the maximum home loan amount in 2019 was capped at $484,850. The traditional down payment for a house in the United States is 20%. Although mortgages require 10% or 15% down, it is possible to buy a house with only 3.5% down, thanks to programs like the Federal Housing Administration (FHA).

Private mortgage insurance may require that the buyer pay the minimum down payment to qualify for coverage. Otherwise, the monthly payment could increase by 0.5% to 1% percent.

Debt to Income Ratio

The debt-to-income ratio is metric lenders use to measure how financially secure a buyer is. It measures how much their household liabilities are compared to the total annual income. The majority of lenders prefer a debt-to-income ratio of at least 32%.

Credit Score

A credit score of approximately 620 is needed for conventional loan approval. To qualify for a large home loan, you’ll need a credit score of at least 740. Some lenders will accept a credit score of 660 or 680 depending on the borrower’s annual salary and the amount paid as a down payment. In order to qualify for the maximum loan amount possible, ensure your credit score is at least in the 700 range, or as close to 740 as possible.

3. Know the Tax Implications Associated with a Million Dollar House

You may be surprised to learn how the purchase of a new home affects your tax situation. Due to the $750,000 cap on the mortgage interest tax deduction, borrowers who put down less than $250,000 could see their tax savings eroded each year until their primary loan total falls below $750,000.

In year five, U.S. tax costs for New York 1 million US dollar property is amounting to 15.5%. There will be no mortgage interest deduction for renting out your home if you choose to do so, but there are various deductions available to landlords that could result in tax-free rental income. This can be challenging because finding renters and managing a rental property are both time-consuming tasks.

4. Plan for the Expenses Beyond the Mortgage

It’s critical to consider all monthly expenses in addition to the mortgage when making a budget for living in a million-dollar house.

Consider the Following Points:

• Most lenders require that you purchase private mortgage insurance if you put down less than 20% of the purchase price of your property. This can cost up to 1% of the loan’s total value. If you put down $200,000, you’d be looking at an extra $375 in monthly payments if you want to pursue a million dollar house.
• You may be charged monthly homeowners association (HOA) fees if your neighborhood has one. HOAs have additional rules and codes that are agreed upon by the residents when they move into the home. Undergoing certain home improvement projects or renovations may also necessitate getting permission from the appropriate authorities before work can begin.
• Another factor to consider is the amount of property taxes you’ll be required to pay each year. In USA, the average property tax rate is just under 1%, which means, for a house that costs $1 million. You’ll have to pay an extra $10,000 a year, or $833 a month.
• Even properties worth a million dollars require regular maintenance, insurance coverage, and general property management. Having an idea of what to expect will help you budget more effectively.

5. Do Not Forget that there are Maintenance Expenses

Maintenance expenses for a typical $1 million house range from $833 to $3,333 per month, but these costs will rise as the house gets older.

One to four percent of your home’s worth should be set aside for maintenance expenses each year. To put that in context, the reserves set aside for maintenance costs for a $1 million house would be $40,000.

Maintenance is the highest unplanned expense that most homeowners face. Homeowners can potentially accumulate more maintenance fees than they can afford if they don’t set aside money regularly dedicated to these costs.

Best Ways to Afford a Million Dollar Home in NYC:

In NYC, at any place for that sake, everyone can explore one of the two options; buy or rent. Renting is especially suits if you do not plan to live long but can afford a lavish lifestyle. If you are earning a handsome amount of money, then renting a million-dollar home is not a bad idea. The other option is, of course, buying. Both have their pros and cons and depending on your requirement, either option can make your dream come true to live in a million dollar home in NYC.

Let us discuss them one by one:

1) Cost to Rent a Million Dollar House in NYC

The established practice for rent is landlords ask between 0.5% and 1% of the total cost. In higher value homes, the rents stay at the lower percentage cut as fewer people show up to rent.

The chief benefit of renting is when you are not looking for long term commitment to the city and might have to leave the city in the future. On the flip side, the running cost would make a huge portion of your earnings plus you cannot consider it as an investment for future gains.

2) Cost to Buy a Million Dollar House in NYC:

The book suggests that if you have a net worth of over a million dollars. You are eligible to purchase a million-dollar home. However, you have to arrange a mortgage for your home loan. Therein, certain factors come into play that strengthens or weakens your pursuit such as down payment. The rule of thumb is if you pay a larger down payment. You will need a lower monthly income to afford a million-dollar home.

When we calculate down payment, the unwritten rule for a required down payment with a purchase price of over $1 million is 20% or more. The higher you go the easier it is for you to seal the deal. 20% down payment makes a figure of at least $200,000 which means you are left with $800,000 worth to arrange a mortgage.

In addition to it, the credit score carries equal importance in your equation. For the conventional scorers, the average credit score is above 600. For big loans, you might need a better score. However, if you can balance your credit score with the down payment, some lenders might accept an average credit score.

Sometimes, lenders ask you to show emergency reserves. They mean to make sure that you have enough liquid assets to pay the mortgage for 6 months. It could be additional savings or another type of liquid investment.

Other Expenses Associated with a Million Dollar Home:

You might be thinking that the principal amount of the loan is all that you need to worry about. But that is not the case since you will have to cater to the taxes, insurance, and fees mandatory in the process. Property tax makes the major portion of extra expenses. Property tax coupled with insurance cost is likely to make closing costs heavier than what you would have expected, in the first place.

In addition to it, you got to take into account the utility bills as well as the running cost of a million-dollar home. The fact is, the larger the house, the bigger the utility expenses.

The point to discuss them here is to keep you prepared with the estimated expenses you will have to incur once you buy or rent a million-dollar home.

Some Pro Tips to Purchase a Million Dollar Home:

• You shall hire a real estate agent with some experience in luxury real estate as every agent is not likely to have the required exposure.
• Instead of handling the transaction by yourself, let your agent deal with the matter as a little error or oversight on your part can cost you thousands of dollars.
• Without denying the fact that you are enthusiastic to buy your dream home, the wise decision is to not go on borrowing to your maximum affordability. Even more important is to not burn all your savings.
• Another factor you need to take into account is the ever-increasing interest rates. The rates might suit you now it is highly likely that they might shoot up in the future.
• Life is extremely unpredictable and you shall stay prepared. There could be potential incidents in the future that might change your priorities. So you shall keep tolerance in your budget plan so you do not have to revise the decision once you bought a million-dollar home.

Final Takeaways

The decision to buy a million-dollar property is entirely up to you if you have the financial means to do so. If you cannot put down 20% of the purchase price, buying a $1 million house can be a poor investment or just a dream altogether. Because of the higher interest and private mortgage insurance required by your lender, your monthly payments will go up, and you may find yourself in an undesirable financial situation.