How much do you need to make to afford a $400k house?
To afford a $400,000 house with $80,000 saved, 20% of the price, you need an income of about $138,000 a year at a 6.71% mortgage rate. The payment comes to about $3,216 a month with property tax and insurance, and $42,260 stays in the bank after closing.
Saving 20% of the price does not mean putting 20% down. Of the $80,000, $12,000 goes to closing costs and $41,373 is held back as a reserve, six months of what the house and the rest of life will cost. That reserve is our rule, not a lender's, and it caps the down payment at $26,627. At this income the lender's payment limit is met with $25,740 down, 6.44% of the price, so the other $887 stays in the bank as well. Below 20% down a lender adds mortgage insurance, about $265 a month here, and it is inside the payment above.
What sets the salary is the lender's payment test. At $138,000 a year, gross pay is $11,500 a month and this house takes $3,216 of it, 28%, right at the 28% ceiling lenders use. Earn less and that ceiling shrinks the loan a lender will offer, and the cash you have cannot cover the gap.
Savings move the salary more than most people expect. With half the price saved, $200,000, the income needed falls to about $125,000. With 15% saved, $60,000, no income reaches this house: the down payment, closing costs and six-month reserve need more cash than that. A lender might still approve that loan; the reserve is our rule, there so a repair or a lost job does not become a missed payment.
The rate matters too. With $80,000 saved, a 5% mortgage brings the income needed down to about $121,000, and at 7.5% it climbs to about $148,000. The table shows every combination, so you can find the row closest to your own savings.
These figures assume a 30-year mortgage at 6.71%, 1.2% property tax, 0.4% insurance, closing costs of 3%, household spending of 60% of gross income including the rent the house replaces, and no other monthly debt. A car payment or student loan comes straight off the 36% back-end ratio and raises the salary you need. Property tax varies a great deal by state, and it is inside every figure here.
Cash saved vs mortgage rate
Every combination, computed the same way — find your row and your column.
| Cash saved | 5% | 5.5% | 6% | 6.5% | 6.71%our default | 7% | 7.5% |
|---|---|---|---|---|---|---|---|
| $40,000 (10%) | — | — | — | — | — | — | — |
| $60,000 (15%) | — | — | — | — | — | — | — |
| $80,000 (20%) | $121,000 | $126,000 | $131,000 | $136,000 | $138,000 | $142,000 | $148,000 |
| $120,000 (30%) | $117,000 | $122,000 | $127,000 | $132,000 | $134,000 | $137,000 | $142,000 |
| $200,000 (50%) | $110,000 | $114,000 | $118,000 | $123,000 | $125,000 | $128,000 | $132,000 |
Each cell is the lowest salary a lender would need to see for this house. Read down a column to see what more savings is worth: more cash lowers the income needed. A dash means no income gets there with that much saved: the down payment, the closing costs and the six-month reserve we hold back need more cash than the row has. A lender might still approve the loan; the reserve is our rule, not theirs.
Assumptions
- Home Price
- 400000
- Cash Saved
- 80000
- Mortgage Rate
- 6.7%
- Mortgage Years
- 30 yr
- Property Tax Rate
- 1.2%
- Closing Cost Rate
- 3%
Frequently asked
What salary do you need to afford a $400k house?
About $138,000 a year with $80,000 saved, at a 6.71% mortgage rate. With half the price saved it falls to about $125,000.
Does saving 20% mean I can put 20% down?
Not once closing costs and a reserve are counted. Of $80,000, $12,000 goes to closing and $41,373 is held back as a reserve, which caps the down payment at $26,627. This page puts down $25,740, 6.44% of the price, because that is all the lender's payment limit needs at this income.
Is the income for a $400k mortgage the same as for a $400k house?
No. A $400k house with $80,000 saved needs a loan of about $374,260. A $400k mortgage is a bigger loan than that, so it takes a higher income than the figure on this page.
Should I wait for mortgage rates to fall?
At 7.5% the income needed is about $148,000; at 5% it is about $121,000. Saving more lowers it as well, and unlike the rate, that part is in your hands.
What about student loans or a car payment?
They come off the 36% back-end limit, so every $100 a month of other debt takes roughly $100 a month of mortgage payment away, and the salary needed rises to make up for it.
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