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  • Writer's pictureStephen Boatman

How Much Do You Need To Earn To Afford a $500,000 House?

When buying a home you should budget with your net income as budgeting with gross income can have you spending over 100% of what you bring home. And you should try to spend around 30% of your net-income or less on your home expense in order to leave room for retirement savings, cars, kids, travel, food, etc. We will look at the numbers below to see how much someone should make to afford a $500,000 home in our current interest-rate environment as well as if rates drop from their current level.


From late 2020 to the end of 2023, home values grew at a historically unheard-of rate. On top of that, the Fed raised rates between March 17, 2022, and July 26, 2023, at an unprecedented rate to combat the rampant inflation our economy was facing. The Fed funds rate went from 0% to 5.5% in just over a year, bringing mortgage rates up from 2.5% to 7.5% as seen in the image below.

Rate increases did their job by slowing inflation due to the increased cost to borrow money. However, combating inflation may be good for the economy it is hard on the population. Especially those looking to purchase a home right now. You can see the typical summer increase in home sales looks very different in 2023 than the past few years.

Although mortgage rates (6%-7%) seem high because of the underlying home value increase they are historically within a normal range.

Buy vs. Rent?

Although most buy vs. rent calculators show it's more affordable to rent these days. A large emotional return comes with home ownership, which makes it worth it for some folks to purchase a house regardless of what the calculator says. If you want to look into one of these buy vs. rent calculators, the best one I've found is on the New York Times website. This calculator accounts for the opportunity cost of investing your money in the stock market vs. in a home and many other valuable variables, including the leverage a home gives you via the mortgage and tax deductions on your mortgage interest. You will need a subscription to use the NYT calculator, but if you're deciding on a half-a-million-dollar purchase, it may be worth paying the $4 for four weeks of access.

Home Ownership Costs

For these cost projections, we will need to make a few assumptions. We will assume the purchase price is $500,000, 30-year mortgage, 7% interest rate, and a 10% down payment.

One-time transaction cost

  • Inspection - $300-$500

  • Appraisal fee - $300-$500

  • Application fee - $75-$300

  • Title services - $150-$400

  • Origination fee - .5%-1.5% to start your mortgage

  • Survey - $150-$400

  • Tax service fee - $50

  • Real Estate Agent Fee – 5%-6% of home price ($500k home = $25,000 - $30,000 cost)

  • Real Estate Attorney Fees - $1,000 - $2,000

  • Total for $500k Home = $29,525 on the low end

  • Down payment - $50,000 (10% of the home purchase price)

  • $79,525 with a $50k down payment

Ongoing Fees

  • Mortgage Payment - $2,993.86/month will be your payment on a $450,000 ($500k- $50k down payment) loan at a 7% interest rate. The total paid over the life of the loan will be $1,077,790, with $627,790.04 going to interest and $450,000 going to the principal over 30 years.

    • Your first payment of $2,993.86 will pay $368 toward the principal and $2,625 toward interest. You can see the breakdown of interest and principal in the amortization schedule below for your first year of paying the mortgage.

    • After one year, you will have paid $31,355.20 towards interest and will have paid $4,571.13 towards the principal.

  • Home Maintenance - $400/mo (Typically 1% of the total home value per year)

  • Home Insurance - $2,000/year

  • Property Taxes - $4,500/year

  • PMI - $2,400/year

  • HOA - We’ll assume no HOA cost, but this could easily be $3,000/year

  • Total ongoing monthly cost excluding HOA = $2,993.86 + $167 (ins) + $375 (tax) + $200 (PMI) + $400 (maintenance) = $4,135.86 

This monthly cost of $4,135.86 makes you think. Could you rent something you’re happy with for less than $4,135.86/month? How much less? If you would happily rent something for $2,500/month or even $3,000/month, save the difference between that payment and $4,135.86, and invest those dollars. How would that look after five or ten years? Again, I recommend deferring the the NYT Buy vs. Rent calculator for this question.

Can you Lower any of these fees?

Yes, a few fees in here are up for discussion. Property taxes tend to increase yearly, and you can often find an attorney or local business to help you negotiate lower property taxes in your area. In Mecklenburg County, you could contact Nosal & Jeter to see if you have a case to appeal this expense.

You can also find a real estate agent that charges a flat rate, such as Help-U-Sell, who will charge a flat rate instead of a 3% commission. Their flat rate on a $500,000 home is $4,950, compared to a typical agent who will charge 3% or $15,000. This could save you a minimum of $10,000!

How much of your income should you allocate to housing

You should spend around 30 % of your income on your housing costs. But should it be Gross or Net income? This is a huge question. I like to budget with net income, not the hypothetical income I receive before taxes. If you budget for 100% of your gross income, you will end up in debt at year's end. 

We'll assume a flat 30% tax rate on your gross income. Even if you're in the 22% federal bracket, you still pay 6.2% social security tax until income hits $168,600 in 2024 and 4.75% NC state tax, showing that 30% is likely on the low side but does depend on your tax picture.

If your monthly cost is $4,135.86 / 30% (housing budget), then $13,786.20 is what your net income should be per month to afford a $500,000 home. (net income) $13,786.2/.7 = (gross income) $19,695 * 12 = $236,334.86, to afford a $500,000 home, I recommend earning $240,000 per year before taxes.

Remember that this doesn't account for car payments, business loans, student loans, kids, credit card debt, or any other debt payment that has a say in your monthly expenses. These variables range from person to person. Talk with a financial professional to consider your specific scenario before deciding how much house you can afford.

What if Interest rates drop?

Besides the bond market responding positively, read more about the volatility of bonds HERE. Housing will also become more affordable if rates drop. We will assume all variables above stay the same except for the interest rate on your mortgage. Below is what your gross income must be for the home expense to equal 30% of your net income.

  • 7% = $236,000

  • 6.5% = $227,000

  • 6% = $219,401

  • 5.5% = $211,000

  • 5% = $203,000

  • 4.5% = $195,521

  • 2.5% = $166,000

What’s the average salary?

The average household income in 2022 for Americans was $74,580 which takes into account dual income households. But we can dig deeper into education level and age for a better look at median income based on these variables. The median income chart below shows that the highest median income demographic is ages 55-64 with a college degree earning $161,000. If we look at the chart below that showing the top 90th percentile then we can see that there are people that can afford to purchase a $500k home out there but it’s becoming increasingly more difficult to make the numbers work for most families.

But this is how markets work. Capitalist markets have a saying that the cure for high prices is high prices. Due to these high prices, days on market is increasing, months supply is increasing, the typical bump in summer home sales wasn’t there for 2023 and may not be for 2024 as sellers are hesitant to sell in this current market that is shifting demand to buyers and most people are stuck in their low interest rate mortgage and can’t afford to move.

Get The Big Things Right

If you get the big financial decisions right (retirement, house, car), you won’t have to worry as much about the small stuff. If you live in an affordable home, avoid car payments, and don’t have dangerous hobbies like gambling or high-risk investing, life becomes very simple. Bandwidth opens up so you can be a better spouse and friend. Trips are affordable, small luxuries like a nice pair of shoes or fancier dinners don’t pinch the budget, and it’s much easier to hit your savings goals. However, if you reach too far on the big things, you can set yourself up for a future where even necessary expenses like a dentist visit feel stressful. Everyone’s scenario is different, and it can be worth discussing this with a financial professional before making a significant decision like purchasing a home.


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