Ready to put a foot on the housing ladder? It’ll cost you at least $1M in over 200 US cities

Financial considerations for buying a $1 million home

Purchasing a $1 million home involves several financial considerations:

• Down payment: A typical down payment for a $1 million home is 20%, or $200,000. This large upfront cost is a significant barrier for many first-time buyers, requiring substantial savings or assistance from family.

• Mortgage payments: Provided a buyer puts down 20% and assuming a 30-year fixed mortgage with a 7% interest rate, the monthly mortgage payment for a $1 million home would be approximately $5,320. That doesn’t include taxes and insurance, which can add several hundred dollars to the monthly expense.

• Property taxes: Effective property tax rates vary by state between 0.32% and 2.23%. A 1% tax rate would equate to $10,000 annually, or about $833 per month. Higher rates in certain areas can increase this cost significantly. Homeowner's insurance will add to the cost, depending on factors such as the home’s value, its age, location, and coverage level.

• Closing costs: Closing costs can range from 2% to 5% of the home’s purchase price, according to LowerMyBills, adding another $20,000 to $50,000 to the initial outlay.

• Realtor commissions: If a real estate agent is used, a 5-6% commission on a $1 million sale would cost $50,000 to $60,000, typically paid by the seller but factored into overall costs. (Relief may be on the way, as real estate agents sort the fallout of a recent settlement tied to inflated commissions.)

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Tips for seven-figure buyers

While the financial challenges of buying a $1 million home are daunting, there are strategies young Americans can use to achieve their homeownership goals.

First, consider focusing on saving a significant portion of your income for the down payment. Consider using safe, high-yield savings accounts or other conservative investment vehicles to grow the money you’ll need for the hefty down payment. (Remember, a 20% down payment would get rid of private mortgage insurance costs.)

Next, pay attention to your credit. A higher credit score can help secure better mortgage rates, reducing monthly payments and overall costs. Meanwhile, many states offer programs that provide down payment assistance, reduced interest rates, or tax credits for first-time buyers. Check with local housing authorities for available options.

Additional tips:

• Consider alternative locations: Look for neighborhoods or cities adjacent to high-cost areas where prices may be more affordable. With the rise of remote work, consider locations with lower housing costs that still offer desirable amenities and lifestyle options.

• Cut costs elsewhere: Trim discretionary spending to boost savings, and find ways to pay down existing debts to improve debt-to-income ratios, making it easier to qualify for a bigger mortgage.

• Negotiate and shop around: Compare mortgage offers from multiple lenders to find the best rates and terms, and work with real estate agents and lenders to negotiate fees and commissions where possible.