Buying a million-dollar home on a $250,000 salary might sound like a reasonable goal. After all, with a six-figure income, many assume they can comfortably manage the mortgage. But the reality looks different once you add in taxes, insurance and other costs.
As mortgage interest rates edge lower, buyers may feel encouraged to shop for bigger or more expensive homes. Before you stretch your budget, it’s worth running the numbers to see what a $1 million home really costs each month and over the long term.
From steep closing costs to jumbo loan requirements, the expenses quickly add up. Here’s a closer look at what it takes to afford a million-dollar home on a $250,000 salary.
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Crunching the numbers on a $1 million home
Let’s take a look at the average costs of buying a $1 million home. If you make a 20% down payment of $200,000, you’ll have an $800,000 mortgage. The current interest rate for a 30-year fixed mortgage is 6.35%, according to Freddie Mac.
Assuming you have strong credit and are a low-risk borrower who gets that 6.35% interest rate, your monthly mortgage payment, including interest, would be $4,978.
That mortgage payment excludes additional expenses like property tax and homeowner’s insurance, both of which will vary depending on where you live.
For example, Hawaii has the lowest property tax in 2025, with a rate of just 0.32%, but rates can be 2% or higher. For this example, let’s use Oxford County, Maine’s 1.192% tax rate, which is about in the middle of the tax rates in the United States.
With a 1.192% tax rate, you would pay $11,920 each year in property taxes on your $1 million home, which comes out to $993.34 per month. If your home’s assessed value increases in the future, or if your state or county tax rate increases, your taxes will increase, too.
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You’ll also need to budget for insurance. Insurance.com estimates that the national cost of homeowners insurance for a million-dollar home is $7,412 per year, but many factors will affect your insurance premiums, including your home’s location, its age and even your history of making claims. The coverage you choose will also impact your rates.
Using these sample figures, if you wrapped your taxes and your insurance into your mortgage, your monthly mortgage payments would be $6,558.
You’ll face some additional costs when you close on your home, too. Closing costs for buyers can range 2% to 5% of your home’s purchase price, according to Zillow, so you could pay up to $50,000.
Additionally, thanks to a real estate commission settlement, sellers may choose not to cover your agent’s fee, so you might be responsible for paying your real estate agent a commission of approximately 3% of your home’s sale price, or about $30,000.
Let’s sum it up:
- Down payment: $200,000
- Closing costs: Approximately $50,000
- Real estate agent’s fee: Potentially $30,000
- Annual property taxes: $11,920
- Annual homeowners insurance: $7,412
- Monthly mortgage excluding taxes and insurance: $4,947
- Monthly mortgage including property taxes and insurnace: $6,558
Debt-to-income and lenders’ rules
Lenders want to see that you’re financially stable and a low risk in order to issue you a mortgage and to give you a lower interest rate. In addition to considering factors like your income, lenders review your debt-to-income ratio, which compares your recurring monthly debt payments to your monthly income.
According to Wells Fargo, mortgage lenders often prefer a debt-to-income ratio below 35% or 36%. If you’re making $250,000 per year and are bringing home $13,500 after taxes and retirement contributions, your existing debts can’t be higher than $4,860 per month.
For example, your car payments, student loans and credit card debts can’t add up to more than $4,860 per month.
Your debt-to-income ratio also affects your credit score, which can impact the mortgage rate you qualify for. A lower debt-to-income ratio can help to increase your credit score. Mortgage lenders see a higher credit score as indicative that you’re a lower-risk borrower, so you’ll be more likely to get a lower interest rate on your mortgage.
Jumbo loans and additional costs
Depending on the size of your down payment, you may need to take out a jumbo loan to buy your home. Jumbo loans are required for single-family mortgages over $806,500, which is the current loan-servicing limit set by Fannie Mae and Freddie Mac.
Jumbo loans often have higher interest rates and stricter underwriting rules than a traditional mortgage, but they are available as fixed-rate and adjustable-rate loans.
Since jumbo loans are riskier for lenders, you’ll usually need a higher credit score to qualify for them. According to Capital Bank MD, you’ll usually need a credit score of at least 680 for a $1 million loan. You’ll need a debt-to-income ratio under 43% to qualify, and lenders also like to see that you have significant cash savings to ensure you can make your mortgage payments.
Explore and compare some of today’s best mortgage offers with the tool below, powered by Bankrate:
Variations by market: Expensive vs. affordable metros
Your home’s location not only affects your property tax and insurance rates, but it also affects overall home affordability. Certain areas simply cost more to live in than others. Metropolitan areas with strong economies, such as New York City, San Francisco and Boston have higher costs of living.
To buy a house in one of these more expensive markets, you’ll need to budget more for expenses like food, utilities and transportation.
If you’re willing to move to a more rural area, like West Virginia, Oklahoma or Mississippi, your costs of living will be lower. You can save on everything from home repair costs to taxes, and chances are you’ll be able to get more house for your money, too.
Finding your comfort zone with mortgage costs
Dave Ramsey recommends homebuyers follow the 25% rule, in which your monthly house-related expenses, such as your mortgage, insurance and property taxes, add up to no more than 25% of your monthly take-home pay. This rule can help ensure you’re able to comfortably afford your mortgage.
In the above example, you would take home $13,500 per month, and your mortgage payments, including taxes and insurance, would be $6,558. That’s nearly half of your take-home income, indicating that in this situation, you can’t afford a million-dollar home on a $250,000-per-year income.
There are ways to change that, though. Saving up a larger down payment will lower your mortgage payments, and you may be able to afford a home with a lower mortgage.
You might also consider moving to an area where taxes and insurance are cheaper to keep costs down. And, ultimately, shopping for a more affordable home may be the best solution so that you can comfortably afford your mortgage.
