Annual Salary Needed to Buy A Million Dollar Home

income to buy one million

A barometer that many successful people and their peers use to define if they’ve made it or not is how much their home is worth.

Most would agree that having the ability to afford a one million dollar home does indicate a notable achievement. So, if you can afford this type of home, your income level is considered very good. Want to find out the income you need to buy a one million dollar home?

For that, you need to first find out the mortgage payment for a $1 million home, then you will understand how much income is necessary to be approved to buy your dream home (or for some their starter home).  Your home loan’s principal and interest are not the only things to pay for on a home. You will have to pay for property taxes, homeowners insurance, and if applicable HOA dues, supplemental taxes like Mello Roos,  or taxes for local schools.

Average prices for single family detached homes with 3 bedrooms in San Francisco is $1,248,000, Los Angeles is $908,250, San Diego is $602,000.  Of course the price depends on the neighborhood.  Homes over one million dollars are plentiful if do a search on Zillow or speak with a local real estate agent.

homes in Presidio Terrace

Presidio Terrace: via Wikipedia: Cullen328

The Down Payment
Affordability is also based on your down payment. If don’t have a sufficient down payment, that $1-million home is out of reach for the time being. Fortunately, there are choices of down payment if you have great credit and high income.  A down payment of 20% or more is not always required.

In fact, as long as your overall debt ratios are less than 43, you should be fine for 10-percent down. The 5-down program for a home up to $1 million is stricter on debt ratios and credit scores. There are special programs that require absolutely no mortgage insurance. However, the interest rate is higher than for a buyer who brings in 20-percent.

An example are today’s rates (as of 11-20-2017) which are hovering around 4.25% for a 30-year fixed jumbo with 20-percent down and qualifying income. While someone who puts down just 10-percent, will be offered a rate of 4.875%. Since there is added risk for the lender they put the increased risk into the interest rate.

How Much is the Payment?
The monthly principal + interest payment will be $4,673 on a 30 year fixed 4.25%  (20% down)
The monthly principal + interest payment is $5,027 on a 30 year fixed  4.875%  (10% down).

Property Taxes
The rates for property tax will vary a lot based on your state. If we use L.A. County’s average property tax rate of 1.16% on a home valued at $1 million, the yearly property tax bill of $11,600 or $966 a month. See a history of rates on this page from the L.A. Times.


Homeowners Insurance
As we all are too familiar with insurance, it can vary a lot based on your location. If you want to live in a neighborhood nestled in the hills such as Los Feliz, Woodland Hills, Laguna Beach, Palos Verdes, and many others, your insurance may be higher due to living in an area prone to having brush fires and/or mudslides.  If we use the average property tax rate of .35% on a home valued at $1 million, the yearly property tax bill is $3,500 or $291 a month.

Income Needed To Afford a Million Dollar Home
Now that you know how much the payment will be on $1 million home, you’ll need to have qualifying income to successfully make a purchase.  Your income needs to be documented by providing your last two years of tax returns.

Some borrowers can use 12-24 months of bank statements to document their income but will need a higher down payment or equity of at least 20% for a refinance. A smart guideline to follow is to spend only up to 28% of your gross income on the mortgage. This leaves you some room for any other monthly debts you may have or are thinking of having in the near future.

Your gross debt service ratio must be less than 43% in order to afford the home with ten-percent down. That means you (or you and another buyer) will need to earn an average gross salary of $14,613 per month (or $175,367 per annually) to qualify.
Example: $5,027 + $966 + $291 = $6,284 / .43 = $14,613

If you’re self-employed, this figure needs to be your adjusted gross income on IRS form 1040.

Be Smart and Don’t Extend Yourself
Determining how much to spend on a home, you need to think about the following factors:

Saving for retirement —  The debt to income ratios don’t factor in your contributions to an IRA or 401K plan. Make sure your monthly finances include saving for retirement. The growth of money you invest in the stock market for two or three decades can be very substantial.

Rising interest rates — While it’s true that interest rates since 2013 have been very low and help you afford a $1-million home. What will happen if you need to refinance the mortgage in a few years because you took a 5-or-7-year Fixed ARM?

If rates jump in a year or two another full percent to 5.875% and your income stays the same, your monthly mortgage payment would increase to $5,620. Perhaps sticking with a 30-year fixed is a better option.

Buying a home is probably going to be the largest purchase you’ll ever engage in, so make sure you consider all scenarios so your life is financial sound and stable.

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California Jumbo Loans with Less than 20 Percent Down

jumbo under 20 down

Jumbo loans, also called non-conforming loans, typically demand that borrowers come in with a 20% down payment if you go to your local bank. Some will even offer you 10-percent down payment up to $1 million if you open a checking or savings account or move your investment brokerage accounts to their wealth division.  For some it works out great while for others it is not a good option.

On the other hand, you may get a lender to approve you a lot easier for a conforming loan under $424,100 with 3, 5 or 10 percent down.  It is worth noting that in certain California high-cost counties which include L.A., Orange, Ventura, San Luis Obispo, conforming loan limits are $636,150, while nearby San Diego is $612,950 in 2017.

Jumbo Loan with 10 Percent Down

Currently, getting a down payment less than 20 percent for a jumbo mortgage is becoming easier with the right mortgage company. As mentioned, traditional banks still want 20 percent or at best 10 percent down if you have a minimum FICO credit score of 720, and may offer you a discount if you move your banking to them.

Tarzana home

Home in the hills of Tarzana, CA 91356

Unlike the big banks, a 90 LTV jumbo loan (10 percent down) using a licensed mortgage company currently requires a minimum 680 middle FICO score up to $2 million on a single family residence that is your primary residence without moving your account.

 5 Percent Down Jumbo Mortgage

Are you aware that there are a few lenders offering jumbo loans with just a 5% down payment?  Yes, it is true and more details such as the maximum loan limit can be found if you click here.

These lenders offering a jumbo mortgage with only 5 percent down, or 95 percent financing are aggressive but qualifying is tougher. So, don’t worry. We are not going back to 2002 – 2005 years all over again. For those who want to put the least amount down, the guidelines to qualify become more stringent.

As an example, a prospective buyer will need to have a middle FICO credit score of 740 and a debt-to-income ratio of 38 percent or less which includes the newly proposed financing.

Reserve Amount Needed

Another huge stipulation is centered on the PITI reserves, which means the number of mortgage payments you have liquid in case of a sudden income loss. Lenders expect you to have 12 to 24 months of the mortgage payment in an account if you want a 95 ltv loan (5 percent down) and 9-12 months for the 10-percent down program.

A retirement account may satisfy this requirement but only 50% of the balance may be used. So, if you have $200,000 in an IRA or 401k, only $100,000 can be deemed as your reserves. A regular brokerage account, up to 70% is allowed.

The lender figures if you have this much saved up after your down payment and closing costs, the likelihood of defaulting is low.  What is interesting is sometimes the amount you are required to have in reserves may equal or exceed the amount you’d need for a 20% down payment.

Gone are the days of having only 3 to 6 months of reserves for multi-million dollar loans from the early to mid-2000s.  Today’s jumbo loan programs are very attractive but you’ll need to qualify.

We can help you if you’re looking to buy or refinance in California, Colorado, Florida and Texas.  In addition, you’ll stll want to have a good realtor represetn you on a purchase. Sure your down payment can be less, but don’t you also want someone in your corner negotiating a lower price for you.

DISCLAIMER: This is not a commitment to lend. Borrowers are subject to credit and underwriting approval. Not all borrowers will be approved for financing. Receipt of borrower’s application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.

Expensive Coastal Cities: Buying a Home In High-Cost Locations

nighborhood pf Doctor Phillips

Buying And Financing a Home In California and Florida

If you are looking to purchase a home in upscale neighborhoods or expensive cities like Los Angeles, San Francisco, San Diego in California or Winter Park, Naples, and Longboat Key in the Sunshine State understand that mortgage financing is more demanding for homes in these locations.Wintr Park, FL home for sale

Mortgage loans above $750,000 are tougher to sell to investors, and a lot of lenders view them as higher risk loans. The best course of action is to be pre-approved (or strongly pre-qualified) for a residential mortgage prior to viewing homes and putting in offers in the most expensive cities.

Mortgages for expensive homes in the above mentioned states are known as “jumbo” or “non-conforming” loans. Even larger loans for one-million dollar plus homes are labeled as “super-jumbo” mortgages.

Conforming Loan Limits

In 2017, the conforming loan limit will be raised to $424,100 for a single-family home in the majority of U.S. counties.

In locations with higher-priced homes like the San Francisco Bay area, and the counties of Ventura, L.A., and Orange County, the limit is $636,150 (and increase from $625,500). These loans are every so often referred to as “jumbo-conforming” or “super-conforming.”

Qualifying For A Jumbo Mortgage

Getting approved for a jumbo mortgage is not that difficult if you have a FICO credit score greater than 680 and sufficient liquid reserves (savings or a rainy day fund) of six or more months to pay your mortgage in case of job loss or unexpected financial trouble.

Borrowers who have really good credit scores above 740, a consistently high income, and substantial savings may be approved for 90 percent financing with these same loan programs.

Financing for Applicants with Challenges

Alternatives do exist for a segment of borrowers who have credit scores below 680 yet still have solid income and an emergency fund. And there are certainly borrowers who have high credit scores and income, yet they take a substantial amount of write-offs on their tax returns.  These borrowers may qualify under an alternative income document product.  These loans typically have more demands from underwriters.

 

Getting a Property in High Demand Cities

With many realtors and buyers frustrated with a lack of inventory for single family homes, you may want to become an owner-occupant landlord and purchase a 2 – 4 unit property. Here’s why.

– Loan limits for Conforming and FHA financing is higher for multi-family properties consisting of two to four properties.

– The rental income may be used to increase your income and lower your debt-to-income ratio.

“The best method when you’re in the market to buy a home in an expensive area is to have a pre-approval letter from a trusted lender who has verified your down payment, income and job. You can do just that with a licensed loan rep. from this site.

Home Flippers Making $100k+ in these California Cities

Second quarter 2016 completed home flip transactions rose 14 percent from the previous quarter and increased by 3 percent from 2015 to the highest amount of home flips since the second quarter of 2010.

A home flip occurs when a property is sold for the second time in an arms length transaction within a 12-month period gathered by real estate Data Provider ATTOM Data Solutions in over 950 counties throughout the U.S. san jose home

In certain California metropolitan areas, flippers made over $100,000 per transaction:

The five markets with over $100,000 in average gross profit in Q2 2016:

San Jose, ($161,000);
San Francisco ($146,000);
Los Angeles ($125,000);
San Diego ($111,250); and
Oxnard-Thousand Oaks-Ventura, ($110,000).

venturay county home

For those who want to participate in real estate investing in one of these markets, use an expert mortage professional who has access to rental property, vacation home, and primary residence loans. Down payments are based on credit score, credit history, annual income, and reserves.
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