How to Buy A 3 Million Dollar Home

How to Buy A 3 Million Dollar Home? [Know The Exact Calculation!!!]

Is having a 3 million-dollar house one of your ultimate dreams? How to buy a 3 million dollar home? Then you’re not the only one. Let’s look at what it takes to be able to afford a 3 million-dollar house that includes annual income, mortgage payments, and other costs associated with owning a home.

For an affordable 3 million dollar home, you should have an initial down payment of 20%, as well as monthly payments of at least $10,000 that satisfy income-to-debt guidelines and cash payments. 

A house worth three million dollars is a significant sum in most areas of America. When you reach the $3 million mark, you’ll be entering the high-end territory.

How to Buy A 3 Million Dollar Home?

How Much Should You Earn To Be Able To Afford A House Worth $3 Million
How to Buy A 3 Million Dollar Home

If you’re planning to buy a 3 million dollar home or you are curious how other homeowners can afford it, continue reading. Learn about the various methods that buyers employ to get a dream property.

Reasons to Buy a 3 Million Dollar Home

Your decision to purchase a house will depend on a range of factors, including its neighborhood and style, proximity to schools and grocery stores, as well as any investments involved.

 Higher-end properties offer several advantages over more budgeted ones, and you may wonder whether you can afford one of the more expensive properties such as “Can I Afford a 3 Million Dollar House? This question might seem intimidating, but once you consider its major advantages, you’ll reconsider!

1. Spend less on improvements

Even if you believe that certain houses are overpriced in the majority of cases, the cost is justifiable by the condition of the home and the fresh paint or projects. It is a major influence on the price overall.

2. Higher resale value

A 3 million-dollar house can be financed with another benefit! You could always sell the property at the price you paid or even higher.

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3. Modern system

It is possible to think that if the house is pricey, living in it would be more costly, but this is not the case. A 3 million dollar home means that you’ll spend less on your monthly expenses due to its high-end features. 

Homes are equipped with modern energy-saving technology, green solutions, environmentally friendly options, and more!

The first home is the most significant financial decision of your life, so you must be cautious about your choices.

How Much Should You Earn To Be Able To Afford A House Worth $3 Million?

How Much Should You Earn To Be Able To Afford A House Worth $3 Million?
How to Buy A 3 Million Dollar Home

For a $3,000,000 home, you must earn at least $340,000 per year. You can earn more money based on your financial situation on your own.

Also, you need to have sufficient cash available to pay for an initial $600,000 mortgage payment and a $15,000 month-to-month mortgage installment.

The Absolute Minimum Income Necessary To Buy A $3 Million Home

The minimum amount of income needed to purchase a house worth three million dollars is $600,000. The minimum income required to own an apartment worth three million dollars would be $1,000,000. A good income for owning an apartment worth three million dollars is $750,000.

The amount of income needed to purchase a 3 million dollar house is between 3X and 5X. When you reach 5X, you’ll likely not be able to rest every night for one year. It is necessary to have a large liquid or cash buffer after having stretched yourself so much to afford this high. Also, you’ll have to be able to say with absolute certainty that your earnings will go upward in the next 12-24 months.

Be aware that once you reach the 3 million dollar threshold or higher, it is time to increase everything both on the downside and upside. The cost of maintaining the house that is worth three million dollars and all the hassles that come with it goes far higher.

What is the income needed to buy a $3,000,000 home?

What is the income needed to buy a $3,000,000 home?
Conventional Mortgage to buy a 3 million dollar home
Down Payment2.50%3.00%3.50%4.00%4.25%4.50%
$0$508,013$542,062$577,343$613,820$632,494$651,453
$150,000$482,612$514,959$548,476$583,129$600,869$618,880
$300,000$457,211$487,856$519,609$552,438$569,245$586,307
$450,000$431,811$460,753$490,742$521,747$537,620$553,735
$600,000$406,410$433,650$461,875$491,056$505,995$521,162
$750,000$381,009$406,547$433,007$460,365$474,371$488,589
$900,000$355,609$379,444$404,140$429,674$442,746$456,017
$1,050,000$330,208$352,341$375,273$398,983$411,121$423,444
$1,200,000$304,808$325,237$346,406$368,292$379,496$390,872
$1,350,000$279,407$298,134$317,539$337,601$347,872$358,299
$1,500,000$254,006$271,031$288,672$306,910$316,247$325,726

Decision matrix to buy a 3 Million Dollar Home

If you don’t know anything about your particular situation, I’ll breakdown the decision matrix in this way:

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  1. If a home that costs $3 million could sell for $3.5M in 24 hours or less and you want to purchase it immediately even though you do not have the funds, borrowing money and asking for assistance could help make that possible.
  2. If the $3 million home you recently bought can be renovated and sold off at an income, calculate its costs as well as the time and effort required to determine its profitability compared with passive investment alternatives. If it can easily generate one million in profits in one year with the potential to sell for over $5 Million dollars later on, then it should certainly be considered.
  3. If the $3 million home is at its current market value, There’s no rush or requirement to purchase. 
  4. If the house listed for $3 million has been available for sale for over a year, why should you offer to pay more than what the market will allow? Keep looking – there are other ways of spending your money, like purchasing an eye-catching car!

Ways to Pay for Your Home

The first thing that could be on your mind is the cost of financing a house. Many homeowners who purchase multimillion-dollar homes purchase them for cash. If this isn’t an option, financing homes within this range may not be an alternative. It’s more complicated than one may think.

1. Finance a 3 Million Dollar Home

First of all, the type of mortgage one can obtain for an expensive house is not as extensive. If you’ve heard about homes with no money down or the 3%-5 percent down payment, they do not apply to homes in this range.

Federal funds back a majority of these loans. Most people know about the FHA (Federal Housing Administration) loan. However, FHA loans are intended to help borrowers who cannot pay for the 20% down cost. If this is you, don’t be too overly excited. The credit score, income limit, and debt-to-income ratios are all considered when deciding on FHA mortgages.

Your debt payments are compared to your income in a debt-to-ratio computation. The total amount from all debts, including car loans, student loans, credit cards, and home mortgage payments, should not exceed 43% – 50 percent. Buyers who earn those levels are not earning enough money to cover the ratio.

In addition, FHA loan limits quickly take away your dream house. These limits are subject to change. However, even high-cost regions have caps of around $750,000. Anything more than that, and the mortgage lender isn’t permitted to offer you an FHA loan.

USDA loans for borrowers with low incomes and VA loans for veteran borrowers come with similar conditions.

2. You will require a conventional Mortgage

Don’t think about the down payment of 5 payments, which is $150k or $3 million. The process of getting a mortgage on the house that is priced in this will require the buyer to obtain a traditional mortgage. In most cases, the bank will request 20% down, which amounts to a huge sum of $600,000.

It is necessary to contribute more money to the bank. The bank may charge additional fees, referred to as closing charges. They can include:

  • Fee for loan origination. The amount a lender charges to cover the costs for processing loans includes confirming the information you provide and making sure that the documents you provided are correct. Banks decide on their loans’ origination charges. It is expected to pay a minimum of half of a percentage point, but it could be higher. Include an amount of at least 15,000 dollars in your amount.
  • Appraisal fees. The lender will be charged for the expense of determining the worth of the property you want to purchase. A debt-to-ratio calculation compares your debt payments to your income.
  • Search for a title. The bank wants to be aware of any outstanding liens or other issues with the property. Expect to pay between $200-$300.
  • Miscellaneous fees. Attorney, notary, or recording costs. Buyers will need to pay for an attorney, recording, as well as notary fees.
  • Escrow. The money will be put in a bank account to pay property tax, insurance, and other costs. If you decide to have a 20% down payment, the lender could reduce the initial cost. In this case, you’d be required to make payments individually each month.

Some of these fees can be agreed upon while others are fixed. Because certain fees differ by location, particularly taxes, an approximate figure is 2%-5 percent of the house’s value. Expect to be paying between $60,000 to $150,000 and the percent down amount.

3. Monthly Mortgage Payments

The next step is the monthly mortgage payments, including escrow and other charges. Ensure you include Homeowner’s Association (HOA) fees when you calculate your monthly payment.

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Many mortgage calculators on the internet cannot be considered since they differ dramatically. The standard is $200-$300 per month with higher costs for neighborhoods with higher incomes.

The input of those numbers into a variety of calculators produced an average of about $14,000 in monthly payments or $168,000 in an annual house payment.

4.Pay cash

If you’d like to stay clear of the costs, you could buy a house in cash if you can afford it. A lot of people who purchase houses at that price are doing exactly this.

  • Business owners can earn the money they earn from their profits.
  • Real estate investors use the money from selling a property and use it for another.
  • Professionals are working for companies with large profit distributions as shareholders.
  • The inheritance beneficiaries make use of it to buy the house they want.
  • The lottery winners put their winnings towards a brand new home.

Cash-paying customers who can pay directly do so to avoid having to pay closing costs. However, they also have a reason to choose this option to avoid paying the interest charges:

  • When you are done with 30 years of a mortgage, the interest rate of 3.25 percent would add $1300,000 to the total cost of the house.
  • A 15-year loan brings the additional interest to $635,000. However, the monthly installment is around $20,000.

Cash payments can help you save a significant amount of money. However, it’s much more expensive to purchase an apartment worth $3 million.

5.Opportunity Costs

Spending one’s money on one thing means foregoing other benefits; this is known as opportunity cost. When buying a 3 million-dollar house, none of its money goes toward investing in stocks and bonds – so purchasing an affordable home could be one way of reaping those benefits instead.

6. Additional Expenses

Every home has additional costs, including taxes on property and insurance, HOA charges, water, and electricity. These are ongoing costs that are somewhat predictable. There are also costs that people often overlook. These expenses are the reason why lottery winners can end up being broke. They purchase a home and forget about how much it would cost to keep it up and running.

If you have owned a home, you are aware of many of these expenses, including repair and maintenance costs, power, water, and other remodeling costs. 

Mortgage holders tend to forget about taxes and insurance because they are a part of the monthly installments. When you buy a home in full, you are accountable for these costs.

Heating and cooling a bigger house will cost more. A million-dollar property is not one that has a weedy lawn, which means that lawn care costs will increase. Your water bill will rise as you water your lawn. If the house you live in has pools, they are the additional expenses.

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The calculations are approximate*

Expenses Approximate monthly cost 
Maintenance $833-3,333
Utilities $1,120
HOA fees$0-1,000+
Total: $1,953-5,520+

The Cost To Own A Three Million Dollar Home

If you own a 3 million home, you should be aware that you’ll incur more expenses than purchasing a home at a median price. It’s about $36,000 to $90,000 per year in property taxes, dependent on the property tax rate of each state. Hawaii offers the lowest tax rates on property, and Illinois, New Jersey, and Texas have the highest rates for property taxes.

To keep a $3 million house, there are also more expensive heating bills in the winter months, higher home insurance, more maintenance costs, more maintenance costs, more landscaping expenses, higher mortgage costs, etc. 

Don’t consider the price of a three million dollar home as only the purchase cost. Think about the ongoing expenses to maintain a 3 million dollar home. The potential cost of owning a house worth $3 million is the price that is not renting the house out.

One of the reasons I was able to sell my previous home on the market in 2017 at $2.75 million was that it had three bathrooms and four bedrooms just for the two of us, my wife and myself. 

The market rent was $7,500 and $8,200 per month, which we could not pay. In addition, there was between $50,000 and $100,000 in future maintenance that we could be required to address. 

Replacement of windows in the back of the house was the first thing that the new owners did for $35,000

Maintenance

It is also important to think about maintenance and upkeep. The amount you will spend on maintenance is contingent upon the dimensions of your property and the location in which you live. In Manhattan, the $3 million house could be a condominium, and for those living in Florida or Texas, the home could be a large estate. 

Experts generally recommend setting aside 1% of the property’s value for maintenance and as high as 3% if it’s a luxury home. Thus, regular maintenance could cost anywhere from $30,000 to $90,000.00 per year, based on the size of the home and other facilities.

Expected Monthly Cost

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High estimate$3,333
Low estimate$833

Property Taxes

Be sure to plan for taxes on property, which can be substantial depending on where you reside. Taxes on real estate vary significantly by county and state of residency of each property in question.

The average home tax bill nationwide is currently set at 1.1 percent of appraised value – this equals $33,000 on an estimated $4 Million home. Your actual bill could vary based on where you reside and whether or not additional taxes apply to your situation.

Who can afford a 3 million dollar home?

The aggressive lenders may let you borrow up to 50% of your income, while the more moderate ones will allow you to get up to 33 percent of your earnings. This ranges from $30K to $45K per month. 

To have the money to buy a house worth $3 million, you must earn between $360 and $540K annually for 30 years. That’s the length of your loan!

The 3 Elements to Afford a Million Dollar Home in California

It’s not a surprise to anyone that houses in California are costly. Therefore, if you’re looking to buy that million-dollar home, you’ll need at least three key components to be in place:

  • Your down payment
  • Your monthly mortgage payment
  • Your household’s income

Let’s take these elements, each one at a time.

#-The Down Payment

The first thing to remember is that you’ll require substantial upfront cash to purchase the million-dollar home to obtain the loan you’ll need to purchase a million-dollar house.

The majority of loans require an initial down payment of 10% of the loan price, So let’s take this as our standard. Ten percent from $1 million will come at $100,000. Therefore, you should aim at $100,000 as your aim for your down payment.

Down Payment Level $3 Million Home 
0%$850,416
5%$817,536
10%$784,668
20%$633,192
30%$578,148

#-The Mortgage Payment for the Month

Once you’ve got your down payment of $100,000 ready now, let’s discuss the monthly mortgage payments on your loan. What would it look like for a loan of $900,000 ($1 million less the down payment of $100,000)?

Your monthly installment, with the interest rate added, will be approximately $3,917. This sounds like a frightening amount, doesn’t it? It’s vital to understand that nearly $1500 of the amount will go to the principal. That’s right. It will reduce your mortgage by 1500 dollars per month.

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Then we need to add to the homeowner’s insurance and taxes. If we assume an average tax rate of 1.25 percent, you’ll be paying $1,042 per month for property taxes.

Insurance for homeowners could be one hundred dollars per month. When we add these three figures together (3,917 + 1,042 plus 167) and we get the sum amount of 5126 dollars per month.

#-Household Income

We must find out the amount of money you’ll need to be eligible for (and afford to pay for) an interest rate of 5126 dollars per month. The most straightforward answer is $12,500 per month (or $150,000 per year).

How do we arrive at this figure? For the vast majority of jumbo loans, lenders would like the borrower’s credit ratio not to be more than 41 percent per month. If you do the calculation, the 41 percent figure is about $5,126.

A salary of $150,000 per year might seem like a mountain to climb. However, If you’re in a good job, or you’re purchasing a home with another person, and your total income meets the required thresholds, it won’t seem as daunting.

Tips on How to buy a 3 Million Dollar Home

The ability to find a higher-paying job will certainly help. But there are many other ways to go to get the 3 million dollar home that you’ve always wanted! How do you save money to pay for a down payment on a million-dollar house? The questions can be a bit confusing. But we’re here to assist!

1. Think about getting a Jumbo loan.

Jumbo loans permit you to obtain loans much larger than the standard loan amount, but one of the drawbacks is that the rates of interest on the Jumbo loan can be quite high, depending on the area you reside in.

2. Increase your score on credit

The better your credit score to a certain level greater, the higher the interest rate on your mortgage you’ll get. You’ll be more likely to qualify to take advantage of a less expensive down-the-payment plan

3. Reduce Your Spending While Saving For Down Payment

This is something many are concerned with when saving for their down payment. Particularly those who can’t save in a timely manner and may think reducing expenses won’t work either. 

In reality, cutting expenses such as food, clothing, and entertainment will allow you to save costs and accumulate enough savings to purchase the home of your dreams.

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4. Profit From First-Time Buyer Programs

If you are diligent and willing to research, you’ll be able to locate different programs that provide low-interest loans or grants for a first-time homebuyer. You don’t need the most expensive amount of money to buy a million-dollar home.

5. Use your retirement savings to make an opportunity to make a down payment.

If you don’t have a house, the biggest asset you have is typically your retirement account. The IRS lets home buyers draw as much as $10,000 out of the IRA or 401(k) plan without having to pay the penalty of 10% early withdrawal. The money must be used within 120 days after withdrawal to avoid penalty, and it will be added to your taxable income for the year.

6. Find a reputable Real Estate agent who is experienced.

Locating a realtor who will guide you through the local market and help you find the perfect home within your budget is essential. 

Cities at Risk of a Housing Collapse

Since a 3-million-dollar home is the single most significant investment of your lifetime, it’s important to be cognizant of any areas in the housing market which might be vulnerable. If you make a 20% down payment on such an investment and the market dips by 20%, you have lost all equity – totaling nearly $600,000.

Be mindful of areas with real estate costs far exceeding their previous peak and future supply. These cities will likely lead to steep increases in the costs of real estate ownership.

I would be cautious about stretching in cities such as Austin, Dallas, and Nashville. In these cities in the heartland, be sure to limit your house purchase price to a minimum of 3X the income of your family. 

Contrarily, cities that are located in the lower left have less supply coming in and haven’t seen as much appreciation since the time of peak. They are more appealing. 

In these cities, it’s more secure to purchase an apartment that is 5x your annual household income. It is much more difficult to construct a home in cities such as San Francisco, San Diego, Miami, Seattle, and even Denver because of laws and geography.

The recommended net worth to purchase a $3 million home

The ideal net worth to be able to afford a 3 million home is $1 million. Before a lender approves a loan this big, they’ll want to confirm that you’ve got significant assets and a solid financial plan. 

Even if you earn enough money, lenders want to ensure that you have sufficient savings as well as different sources of earnings, for example, rental properties, investment accounts, or royalty payments. 

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3 million dollars is a significant amount of money, and lenders want to ensure that you are able to afford the mortgage in case your income changes or there is a slump within the economic system. 

So, before buying an investment property worth $3 million, it is important to establish an asset worth at least $1 million in order to be protected from the high-interest rate.

FAQ

Can I Afford A Three Million-Dollar Home?

Yes, you can afford a 3 million dollar home. If you have an ample budget and are prepared for all future expenses of such a purchase, then yes, it is an excellent investment.

Should I Purchase A $3 Million Home?

Yes, you should purchase a 3 million dollar home. Purchasing a million-dollar house should depend on your lifestyle and financial goals. If you can qualify for low-interest mortgage payments with enough income to cover costs, an investment property worth $3 million might be an attractive choice.

Final thought

A home purchase is an investment of a lifetime for most people. If you opt to get a mortgage, you must be ready for the 20 percent down amount. Cash purchases have their advantages. However, whether you choose to get a mortgage or purchase the house on your own, consider the maintenance cost.

There are two aspects to owning a home: purchasing it and being in a position to maintain it. Make sure you have money for both.

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