Is it feasible to buy a luxury property worth a million dollars with an annual income of $250,000?
Buying a Million-Dollar Home: A Comprehensive Guide
Buying a million-dollar home is an exciting yet daunting prospect. Here's a breakdown of the key factors to consider when taking this significant step.
Firstly, mortgage lenders view a higher credit score as a sign of a lower-risk borrower. This means that a borrower with a good credit score is more likely to secure a lower interest rate on their mortgage.
The mortgage for a $1 million home with a 20% down payment amounts to $800,000. Closing costs for buyers can range from 2% to 5% of the home's purchase price, which for a $1 million home could amount to approximately $50,000.
The monthly mortgage payment, including interest, for a $1 million home with a current interest rate of 6.35% (as reported by Freddie Mac) would be approximately $4,978. However, if taxes and insurance are wrapped into the mortgage, the monthly mortgage payment would increase to approximately $6,558.
Lenders review the debt-to-income ratio, which compares recurring monthly debt payments to monthly income, to assess financial stability and risk. For a person making $250,000 per year and bringing home $13,500 after taxes and retirement contributions, their existing debts can't be higher than $4,860 per month.
To qualify for a jumbo loan, which is required for single-family mortgages over $806,500 (the current loan-servicing limit set by Fannie Mae and Freddie Mac), you'll usually need a credit score of at least 680.
Saving up a larger down payment will lower your mortgage payments. Dave Ramsey recommends homebuyers follow the 25% rule, in which your monthly house-related expenses add up to no more than 25% of your monthly take-home pay. Lenders also like to see that you have significant cash savings to ensure you can make your mortgage payments. Mortgage lenders often prefer a debt-to-income ratio below 35% or 36%.
It's worth noting that cities in the USA known for low taxes and insurance costs for million-dollar homes include locations in Texas, which is highlighted for its low taxes, business-friendly environment, and more affordable real estate compared to cities like San Francisco or New York. However, annual property taxes for a $1 million home can vary significantly depending on the location, with rates as low as 0.32% in Hawaii and as high as 2% or more.
Lastly, sellers may not cover the real estate agent's fee, potentially requiring the buyer to pay a commission of approximately 3% of the home's sale price, or about $30,000.
In conclusion, buying a million-dollar home requires careful planning, consideration of various costs, and a solid financial standing. By understanding these factors, you can make an informed decision and navigate this exciting journey with confidence.
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