How Do People Afford Million Dollar Homes?
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Richard Haddad Managing EditorClose
Richard Haddad Managing EditorRichard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
It used to be that owning a million-dollar house was a luxury dream beyond the reach of average Americans. Today, in some parts of the country, home prices have made it almost a necessary reality for those who need to live in high-cost housing markets. But how do people afford million-dollar homes?
In this guide, we provide insights into how you can unlock the door to such a significant investment. We’ll look at the financial mechanics behind affording a luxury home and explore alternatives that can make your dream purchase a reality. We’ll also share expert insights and interesting facts about million-dollar home markets in the U.S.
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How do people afford million-dollar homes?
There are a number of strategies homebuyers are employing in their quest to buy higher-end properties. Denise Madan, a luxury home real estate agent in Florida with 25 years of experience, explains that, initially, the process mirrors a traditional home purchase, but then often requires some creative financing.
“Typically, a buyer is going to put 20% down, and they’re going to finance the rest — most of them do a traditional 30-year-fixed loan. However, for a [million-dollar home], they are often going to do two loans. They’re going to do a conventional loan, and then do an equity loan so that they can afford it.” She adds, “If the loan amount goes over a million, like over a million four, then they would have to get a jumbo loan.”
Let’s take a look at these common ways people can afford to purchase a million-dollar home.
1. Unlock equity from your existing home
For many, the key to affording a million-dollar home lies in the equity of their current property. Homeowners can tap into this equity through a sale or a home equity line of credit (HELOC), providing a substantial down payment for their next purchase. This approach leverages the value you’ve built in your current home to help finance a more expensive one.
If you’re a homeowner with significant equity in your current house, there are innovative buy before you sell programs available from real estate companies like HomeLight that can help you unlock your equity and purchase your new home. Here’s a short video illustrating how HomeLight Buy Before You Sell works:
2. Save for a large down payment
A traditional, yet powerful strategy is saving for a large down payment. Accumulating a significant down payment not only reduces the amount you need to borrow but can also improve your loan terms. A down payment of 20% or more can eliminate the need for private mortgage insurance (PMI), lowering your monthly expenses.
Madan says not all buyers have a 20% down payment. “There are some people that only put 10%, but most people buying a million-dollar home usually put down more. With the market the way it is, and with the interest rates high, people want to put more money down because the cost of borrowed money is so expensive.”
3. Apply for a jumbo loan
As Madan noted, when purchasing a high-value property, a jumbo loan may be necessary. These loans exceed the limits set by government-sponsored entities, making them suitable for million-dollar homes. Jumbo loans often require a strong credit score, a low debt-to-income ratio, and, typically, a higher down payment. The application process is rigorous, but it’s a viable option for those who qualify.
4. Liquidate another asset
Some buyers choose to liquidate other assets to fund their purchase. Investment liquidation could include selling stocks, bonds, or other significant investments. While this option can offer immediate access to large sums of cash, it’s essential to consider the tax implications and long-term financial impact of liquidating investments.
Alternatives to afford a million-dollar home
While the traditional path to purchasing a million-dollar home involves substantial savings or leveraging current assets, there are creative alternatives that can make this dream more attainable. These strategies provide potential homeowners with different avenues to explore.
Look into a shared equity venture
Shared equity ventures offer a unique way to finance a home purchase. In this arrangement, an investor provides part of the home’s purchase price in exchange for a proportionate share of the home’s future value. This option can significantly reduce the initial financial burden on the buyer, making million-dollar homes more accessible. However, it’s important to understand the long-term implications of any shared equity investment programs and ensure that the agreement’s terms are favorable.
Co-borrow with a family member or friend
Another strategy is to co-borrow with a trusted family member or friend. This approach allows two or more parties to pool their financial resources, increasing the buying power and potentially qualifying for a better mortgage rate. It’s essential to have clear agreements in place regarding ownership, payments, and what happens if one party wants to sell, ensuring the relationship remains intact throughout the co-ownership.
Assume an existing mortgage
Assuming an existing mortgage is a less common but viable option. This involves taking over the seller’s mortgage under the current terms, which can be advantageous if the existing interest rate is lower than current market rates. Not all mortgages are assumable, and buyers typically need to qualify under the lender’s requirements, but this can be a way to avoid higher interest rates and reduce closing costs.
What is the monthly payment on a million-dollar home?
“If someone is buying a million-dollar home with a 20% down payment with today’s interest rate of around 6.9%, they would be looking at a monthly mortgage payment from $6,400 to $7,000,” Madan estimates. “If the house was in a community with an HOA and if the property taxes were higher than average, you could expect to pay closer to $7,000.”
But she says million-dollar homebuyers must also consider insurance costs, which have spiked in recent years, especially in disaster-prone areas of the country.
Payment examples for a million-dollar house
Now let’s look at some monthly payment estimates if you financed a full million dollars on a home. In the example table below, we used a home with a selling price of $1,250,000 and a traditional 20% deposit of $250,000, so you are financing $1,000,000 with no required private mortgage insurance.
| Interest rate | Principal and interest only | With taxes and insurance |
| 5.0% | $5,368 | $6,826 |
| 5.25% | $5,522 | $6,980 |
| 5.50% | $5,678 | $7,136 |
| 5.75% | $5,836 | $7,294 |
| 6.0% | $5,996 | $7,484 |
| 6.25% | $6,157 | $7,616 |
| 6.50% | $6,321 | $7,779 |
| 6.75% | $6,486 | $7,944 |
| 7.0% | $6,653 | $8,111 |
| 7.25% | $6,822 | $8,280 |
| 7.50% | $7,992 | $8,450 |
| 7.75% | $7,164 | $8,622 |
| 8.0% | $7,338 | $8,796 |
Source for estimate taxes and insurance: U.S. Bank
Million-dollar homes come with other expenses
When reviewing your income and planning your monthly payment budget, it’s important to keep in mind that million-dollar homes often have higher costs in these other expense categories:
- Mortgage insurance
- Homeowners insurance
- Property taxes
- HOA fees
- Utilities
- Home maintenance
What annual salary is needed for a million-dollar house?
To afford a million-dollar home, your income must meet the lender’s requirements for such a significant mortgage. According to a recent estimate by Fortune Magazine, qualifying for a $1,000,000 mortgage loan typically requires an annual salary between $195,000 and $210,000. This translates to roughly $16,300 per month in income.
These figures are based on securing a 30-year, fixed-rate mortgage and making a 20% down payment, equivalent to $200,000. This estimate underscores the importance of a strong financial foundation when considering the purchase of a high-value property. The exact amount you need will depend on a number of factors, including your:
- Annual income
- Available down payment
- Credit score
- Debt-to-income ratio (DTI)
- Current interest rates
What is the 43% rule?
The 43% rule is a guideline used by many lenders to determine a borrower’s eligibility for a mortgage. It states that a borrower’s total monthly debt payments, including the mortgage and other debts like car loans or credit cards, should not exceed 43% of their monthly gross income. This ensures that borrowers are not over-leveraged and can comfortably afford their mortgage payments. However, if a buyer has compensating factors, such as high-balance savings accounts, some lenders will accept ratios as high as 50%.
What is the 28/36 rule?
The 28/36 rule is a standard financial principle suggesting that households should spend no more than 28% of their gross monthly income on housing expenses and no more than 36% on total debt service, including housing and other debts like auto loans and credit cards. This rule helps individuals budget for a home purchase while maintaining financial stability.
Start Making Offers Without Waiting to Sell Your Home
Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.
Is it hard to qualify for a million-dollar home loan?
Qualifying for a million-dollar home loan can be challenging due to the stringent criteria lenders use for high-value mortgages. Lenders scrutinize the borrower’s credit score, debt-to-income ratio, income stability, and the down payment amount more rigorously for larger loans.
“The higher the credit score someone has, the better it is for them,”
Let’s take a closer look at each qualifying factor you’ll need to consider:
- Credit score requirements: A high credit score is crucial, often above 700, to secure favorable loan terms and interest rates. Lenders perceive borrowers with higher scores as less risky, which is particularly important for large loan amounts.
- Debt-to-income ratio: The debt-to-income (DTI) ratio is another critical factor. For million-dollar loans, lenders prefer a DTI ratio that falls within the 43% rule mentioned above. Madan says, “People applying for a million-dollar home loan should not have a lot of debt. Their debt ratio should be under 40%.”
- Income verification: Lenders will thoroughly verify your income and employment history to ensure you have a stable and sufficient income to afford the monthly payments. This often involves providing several years of tax returns, W-2s, and other financial documents.
- Down payment: A substantial down payment, typically 20%, is expected to qualify for a million-dollar home loan. This reduces the lender’s risk and can also eliminate the need for private mortgage insurance (PMI), lowering monthly payments.
Pro tip: “I think it’s best when somebody goes to a lender, and they don’t just get the pre-approval letter; they get the DU, the desktop underwriting,” Madan says. “Meaning, that the lender does the extra work. Our lender does this and gets all the documents he needs, so when I go put an offer on the house for a client, I am 100% sure the buyer can afford it.”
What cities have the most million-dollar homes
According to a recent report by Lending Tree, the following cities top the list of U.S. metro markets with the highest percentage of homes worth $1 million or more:
1. San Jose, CA: 66.28% ($1,237,800 median home value)
2. San Francisco, CA: 52.91% ($1,042,300 median home value)
3. Los Angeles, CA: 26.48% ($748,700 median home value)
4 San Diego, CA: 23.15% ($722,200 median home value)
5. Seattle, WA: 18.70% ($638,400 median home value)
6. New York, NY: 11.94% ($533,700 median home value)
7. Boston, MA: 11.82% ($561,500 median home value)
8. Washington, DC: 9.71% ($497,800 median home value)
9. Denver, CO: 7.79% ($519,600 median home value)
10. Sacramento, CA: 6.54% ($513,600 median home value)
10 most overpriced housing markets in the U.S.
Researchers at Florida Atlantic University and Florida International University studied the top metropolitan cities in the U.S. and identified which cities have the most overpriced housing markets.
Below is a list of the locations determined to have the most overvalued housing market in the country, with buyers paying the highest percent premium on the typical home.
| City | % of premium | Average price | Expected price |
| 1. Atlanta, GA | 43.21% | $370,261 | $258,544 |
| 2. Cape Coral, FL | 42.77% | $394,838 | $276,546 |
| 3. Detroit, MI | 41.02% | $235,480 | $166,987 |
| 4. Tampa, FL | 39.88% | $372,746 | $266,474 |
| 5. Palm Bay, FL | 39.76% | $351,760 | $251,689 |
| 6. Knoxville, TN | 39.19% | $327,194 | $235,074 |
| 7. Las Vegas, NV | 38.34% | $405,854 | $293,369 |
| 8. Lakeland, FL | 38.04% | $307,220 | $222,556 |
| 9. North Port, FL | 37.48% | $452,095 | $328,839 |
| 10. Orlando, FL | 37.42% | $384,720 | $279,960 |
Source: Florida Atlantic University and Florida International University study (As of Dec. 2023)
10 least overpriced housing markets in the U.S.
Using the same data, researchers also identified the least overpriced housing markets in metropolitan cities in the country. Below is a list of the 10 locations where buyers are paying the lowest percent premium on a typical home.
| City | % of premium | Average price | Expected price |
| 91. Pittsburgh, PA | 10.25% | $201,611 | $182,865 |
| 92. Portland, OR | 9.88% | $528,063 | $480,585 |
| 93. Virginia Beach, VA | 9.63% | $332,715 | $303,490 |
| 94. New York, NY | 9.28% | $628,951 | $575,548 |
| 95. Baton Rouge, LA | 7.93% | $226,721 | $210,067 |
| 96. Baltimore, MD | 6.23% | $367,544 | $345,993 |
| 97. Washington, DC | 5.91% | $538,701 | $508,619 |
| 98. San Francisco | 3.06% | $1,099,420 | $1,066,725 |
| 99. Urban Honolulu, HI | -2.83% | $852,268 | $877,080 |
| 100. New Orleans, LA | -5.09% | $235,103 | $247,721 |
Source: Florida Atlantic University and Florida International University study (As of Dec. 2023)
You can view the complete list of Top 100 U.S. Housing Markets at this link:
How to select an agent to buy your million-dollar home
Choosing the right real estate agent is one of the most important factors when buying a million-dollar home. An experienced agent in the luxury market can provide invaluable insights, negotiate on your behalf, and navigate the complexities of high-value real estate transactions. Here are key factors to consider:
- Experience in the luxury market: Look for an agent with a proven track record with successful million-dollar home transactions. They should have in-depth knowledge of your desired area and a network of contacts that can offer access to exclusive listings, sometimes even before they hit the market.
- Understanding your needs: Your agent should take the time to understand your specific needs and preferences. Whether it’s privacy, unique amenities, or a specific location, finding an agent who listens and is committed to your criteria is essential.
- Negotiation skills: In the high-stakes world of luxury real estate, negotiation skills are paramount. An adept agent can save you significant amounts of money and secure favorable terms by leveraging their expertise and market knowledge.
- Discretion and trust: Discretion is often a priority for buyers in the luxury market. Choose an agent who respects your privacy and whom you can trust with sensitive information.
- HomeLight’s Agent Match: To simplify your search for the perfect luxury home agent, consider using HomeLight’s Agent Match. Our platform connects you with top real estate agents experienced in million-dollar transactions, ensuring you have the expert guidance needed to navigate your homebuying journey.
Madan sums up her advice for anyone making plans to buy a million-dollar home: “Save as much money as you can. It’s obvious the more money you put down — and especially if it’s 20% or higher — the lower your payment, and you will avoid [the additional cost of] private mortgage insurance. Watch your spending and put money aside with each paycheck — maybe 10% if you can afford it.”
She adds this closing note: “Don’t try to keep up with the Joneses. Look at your own expenses. The people that are the wealthiest are the people that live below their means.”
Header Image Source: (paulbr75/ Pixabay)
- "Most Expensive Housing Markets in the US", Norada Real Estate Investments (January 2024)
- "What is a jumbo loan?", Consumer Financial Protection Bureau (January 2024)
- "What are conforming loan limits, and why are they increasing?", U.S. Bank (November 2023)
- "What is a debt-to-income ratio?", Consumer Financial Protection Bureau(August 2023)
- "Liquidation Definition", U.S. News (December 2023)
- "What is a Shared Equity Mortgage?", LendingTree (December 2023)
- "Homeowners insurance rates skyrocketed in these 10 states — here’s how to lower your premiums", CNBC Select (February 2024)
- "What your salary needs to be to afford a $1 million home", Fortune (January 2024)
- "What is the 28/36 rule and how can it help you get approved for a mortgage?", CNBC Select (July 2023)
