With home prices so high, you may be wondering what salary you’d need to earn to afford a home costing $500,000. This question can be difficult to answer, but with a few simple calculations, you can get an estimate of how much you need to make to purchase a home at this price point.

The 28/36 mortgage rule is a helpful guide to calculate how much you need to make. This rule suggests that borrowers should devote no more than 28% of their monthly gross income to housing expenses. This is known as the front-end ratio.

The rule also holds that no more than 36% of your total monthly income goes to all debt obligations. This is the back-end ratio.

How much do I need to make for a $500K house?

Based on the 28/36 rule, you would need a salary of around $170,228 per year or $14,186 per month to comfortably afford a $500,000 home. Here’s how the calculations work:

  • Home purchase price: $500,000
  • Down payment: $30,000 (assuming 6% of the purchase price, the average amount for first-time buyers, per 2022 data from the National Association of Realtors)
  • Loan term: 30 year fixed-rate mortgage
  • Loan interest rate: 6.39% (the average rate as of May 18, 2023)
  • Monthly mortgage payment: $3,227
  • Average monthly homeowners insurance premium: $149
  • Average monthly property tax: $471
  • Average monthly HOA fees: $125
  • Total monthly housing expenses: $3,972
  • $3,972 / 28% = $14,186 monthly income required

A common mistake that people often make is only calculating the mortgage payment and not including all the true costs of homeownership, such as property tax, homeowners insurance, and potentially HOA fees. To be safe, you may want to add in a buffer for maintenance costs.