Here’s the income you need to buy a $500K home in America — as mortgage rates hover near 2-year lows

Generally, keeping your housing costs to 30% of your income or less is essential to avoid falling behind financially. Whether you can afford a $500,000 home will depend on your income, the amount you have available for a down payment, and the other costs associated with owning your home.

Don’t take on too much house

When we refer to keeping housing costs to 30% of your pay or less, there’s more than just a mortgage to consider. That 30% guideline should account for related expenses such as property taxes, HOA fees, and homeowners insurance.

Based on a 6.12% interest rate on a 30-year mortgage, if you make a 20% down payment on a $500,000 home, you're looking at a monthly payment of $2,481 for principal and interest. In other words, that’s what your mortgage itself will cost you. But that doesn’t account for the additional costs just mentioned.

Using Zillow’s mortgage calculator, in this scenario, taxes are estimated at $654, and insurance is estimated at $105 based on the tool’s built-in data. The monthly property tax and insurance you have to pay may be higher or lower, depending on where you live.

However, if we add these numbers up, we get to $3,240 per month, or $38,880 per year, for housing costs. That means you’d need an annual salary of at least $116,640 to afford a $500,000 home.

The U.S. Bureau of Labor Statistics reports that during the second quarter of 2024, the median weekly wage was $1,143. That puts the median annual wage at $59,436, which means you'd need just about twice that income to afford a $500,000 home based on today's mortgage rates and a 20% down payment.

You may have more options as rates continue to fall

Borrowing rates are expected to fall in the coming year as the Federal Reserve reverses the interest rate hikes it implemented in 2022 and 2023. The federal funds rate doesn’t always directly influence mortgage rates. But there’s a good chance mortgage rates will become even more competitive in the next 12 months. So, if you cannot afford a $500,000 home today, you may be in a better position if rates fall even further.

Waiting to buy a home also gives you time to save a larger down payment. The more you put down at closing, the lower your monthly mortgage payments are apt to be.

If you don’t quite have the income required to buy a $500,000 property, lowering your home-buying budget may be a more efficient way to go about things than waiting for mortgage rates to fall further. Overspending on housing could, in an extreme case, put you at risk of losing your home. In a less extreme case, you risk falling behind on other bills and damaging your credit.

In a less extreme yet aggravating situation, you risk leaving yourself with little money to enjoy your life. Putting yourself in a position where you’re house poor isn’t a great thing. So think carefully about how much house you’re taking on, even as mortgage rates drop.