How to Afford a 3 Million Dollar House | PropertyClub (2024)

To afford a $3 million home, you should make at least $700,000 per year to live comfortably. Here is a breakdown of the associated costs.

How to Afford a $3 Million House

Buying a multi-million mansion is a dream of many people. However, you must take stock of the associated costs to avoid getting in over your head. First, you'll need to afford the down payment if you plan on financing the purchase. The mortgage on a $3 million home is considered a jumbo loan, which means lenders will require a down payment of anywhere from 10 – 30% or $300,000 to $900,000. Plus, don't forget to budget for closing costs, which are usually 3-6% of the loan amount. So, include an additional $80 - $200,000 in your budget to account for these additional fees.

Cost to Own a $3 Million Home

Once you have the money saved, you'll want to consider the costs of owning the home and make sure you have enough income to cover the payments and additional responsibilities. Here are some of the costs you should consider.

Mortgage Payments

The exact amount of your monthly mortgage payment on a $3 million house will vary depending on the size of the down payment and the interest rate the bank is willing to approve. The average interest rate for a jumbo loan is 6.96% on a 30-year fixed-rate mortgage. If you can make the full 20% down payment, that would leave you with an outstanding principal of $2.4 million. At 6.96% interest, your monthly payment would be $15,903 ($190,838 annually).

Most experts recommend that you don't spend more than 28% of your income on your mortgage payment, which is why $700,000 is the recommended salary for a $3 million home (28% of $700,000 is $196,000). However, you may get approved with less income if you can secure a lower rate.

Upkeep/Maintenance

You should also consider upkeep and maintenance. Ultimately, how much you spend on maintenance depends on the size of the home and where you live. In Manhattan, a $3 million home could be a condo, whereas in Florida or Texas, it may be a massive estate. However, most experts recommend budgeting about 1% of the home's value for maintenance and up to 3% if it's a luxury property. So, regular maintenance will likely cost about $30,000 to $90,000 per year, depending on the square footage and additional amenities.

Property Taxes

Also make sure to prepare for property taxes, which may be hefty depending on where you live. Property taxes will also vary dramatically depending on the state and county where the home is located. Nationwide, the average effective property tax rate is 1.1% of the home's assessed value, which would be $33,000 per year for a $3 million property. However, this could be higher or lower depending on where you live and whether additional taxes are required.

Recommended Net Worth to Afford a $3 Million House

The recommended net worth to safely afford a $3 million home is at least $1 million. Before a lender approves you for a loan that large, they'll want to see that you have substantial assets and a sound financial profile. Even if you make enough money, lenders will want to see that you have enough savings and other sources of income, such as investment accounts, rental properties, or royalty payments. Three million is a lot of money, and they want to be sure you can still afford to pay the mortgage if your income changes or there is a downturn in the economy. So, before you purchase a $3 million home, you'll want to develop a net worth of at least $1 million to avoid getting hit with a high-interest rate.

Should You Buy a $3 Million House and Up?

It all depends on how confident you feel in your financial security and whether you believe you can realistically afford the obligations. If you make $700,000+ per year and have a net worth of over $1 million, then there's no reason why you shouldn't be able to purchase your three-million-dollar dream home. However, if you have any doubt about the future of your finances or your ability to repay, it's better to look for cheaper options and continue to work toward your financial goals.

Buying a $3 million home is a major responsibility, and it's easy to get in over your head and fall behind on payments. Even if you have the cash on hand to afford the down payment and other costs, you should be realistic about your financial projections and make sure you feel confident about your ability to make the payments for the next 15-30 years.

Buying a $3 Million Home Bottom Line

Buying a $ 3 million home can be an exhilarating feeling, but it also comes with a lot of responsibility. The taxes and upkeep alone can cost hundreds of thousands of dollars per year, not to mention the mortgage payment. So, before you commit to a purchase, take stock of your financials and make sure you can actually afford it.