Here's How Much Money You Should Make In A Year To Afford A $1 Million House

A million-dollar home was once a symbol of luxury, but as housing prices have climbed nationwide, that figure isn't as impressive as it used to be. Some metros are even dubbed million-dollar cities for the concentration of homes worth $1 million. In fact, in some cities with expensive housing markets, such as Seattle or San Francisco, $1 million dollars may just get you a simple starter home. However, the amount of income you would need to afford one might surprise you.

According to Bankrate, a household would need to earn $218,016 a year to comfortably afford a $1 million home with a 30 year mortgage at a 6.5% interest rate, a 20% downpayment, and $1,000 monthly property tax contribution. While $218,000 is considered upper class in many parts of the country, it isn't necessarily a sign of extreme wealth. However, with disciplined money habits such as avoiding debt, keeping monthly home costs under a certain percentage of income, and following the 28/36 rule, it can go a long way.

Even if you're not in the market for a $1 million home, the 28/36 rule can help you know how much you can spend on your dream home based on your income. The 28/36 rule can be split into two sections: the front end and the back end. The front end suggests that 28% or less of gross monthly income should go toward housing costs, such as the mortgage, HOA fees, and property taxes. The second part, or the back end, states that 36% of gross monthly income should go toward all debts. This includes mortgage, credit card debt, auto loans, and other forms of consumer debt.

To put the rule to work, you first have to figure out some totals. Add up your household's gross income and debt payments. Then, multiply your total income by 0.28 to get the maximum amount you should spend on housing costs. Next, multiply the total income amount by 0.36: This should give you a good estimate of how much you can comfortably afford to budget for mortgage payments while paying other debts. For example, if your household income is $8,000 a month, you would be able to budget $2,240 for housing and $2,880 for all your debts. Knowing these estimates can be a good way to start your home search, as they provide actionable data and help you determine if you need to pay down debt or earn more to afford a home in a specific price range.