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A reverse mortgage allows older homeowners to tap into a portion of their home equity as cash — either a lump-sum payment, monthly payments, or a line of credit. As with any mortgage, the lender charges interest — and reverse mortgage interest rates tend to be higher than those on a typical home loan. There are also fees involved.

Most lenders offer a reverse mortgage only to those age 62 or older, although a few companies permit those 55 and over to obtain one. This type of mortgage can be useful for retired seniors who need additional income to cover rising medical costs, home renovations, debt consolidation, and general living expenses. But what is the interest rate on a reverse mortgage? We’ll explore current rates and how they work below.

Comparing Current Interest Rates for Reverse Mortgages

Reverse mortgage rates can be either fixed or adjustable, and available rates change frequently. The table below shows reverse mortgage interest rates for the most common type of reverse mortgage — a home equity conversion mortgage (HECM) — as of June 7, 2024. During that week, the average rate on a 30-year fixed rate home loan was 6.95%.

The margin is the number of percentage points added to the interest rate by the lender to set the interest rate you will pay on an adjustable-rate mortgage after the initial rate period ends. The margin is set and shouldn’t change after closing.

What Is a Reverse Mortgage?

To understand whether a reverse mortgage, with its higher interest rate, is right for you, it helps to understand how exactly reverse mortgages work. A reverse mortgage is a type of loan available specifically to homeowners (usually those 62 or older) who have built up significant equity in their property. They can access that equity as a lump sum, monthly payments, or line of credit and use it for various purposes, like funding expenses in retirement, renovating their home, or paying down debt. For older Americans, it’s an alternative to another type of loan, such as a home equity line of credit or a personal loan.

Reverse mortgages have several fees, including mortgage insurance premiums, an origination fee, a servicing fee, third-party charges (appraisal, title search, etc.), and of course interest.

Recommended: Can a Reverse Mortgage Take Your Home?

Types of Reverse Mortgages

There are two main types of reverse mortgages: federally overseen HECMs and proprietary reverse mortgages. Most homeowners will get an HECM when applying for a reverse mortgage.

Home Equity Conversion Mortgage (HECM)

An HECM is a reverse mortgage that is governed by the Department of Housing and Urban Development (HUD). These reverse mortgages are only available through private lenders approved by the Federal Housing Administration (FHA). Borrowers must go through counseling before getting approved for the loan; the HECM counselor will discuss eligibility, risks, and how the reverse mortgage works. HECMs have a borrowing limit. For 2025, it is capped at $1,209,750.

Proprietary Reverse Mortgage

If your home appraisal exceeds the HUD limit for HECMs, you’re not out of luck. Instead, you can look for a proprietary reverse mortgage. However, you can generally only get a proprietary reverse mortgage as a lump sum. In addition, loan costs are usually higher — as are the interest rates. And because proprietary mortgages aren’t federally insured, lenders typically limit loan amounts to a smaller percentage of the value of your property.

Recommended: Reverse Mortgage vs. HECM

How Reverse Mortgages Work

To get an HECM reverse mortgage, you must:

•   Be 62 or older

•   Have significant equity in your home (or have paid it off completely)

•   Go through formal counseling

•   Use the home in question as a primary residence (or live in one of the units if it’s a multi-unit home)

•   Have no delinquent federal debt

And as with a typical mortgage, lenders will also review your credit history, income, assets, and other financial information to determine if you qualify for the loan. The amount the lender gives you depends on the value of your home (and the equity you’ve built), your age, loan fees and interest, and how you choose to receive the money.

Unlike a traditional mortgage, borrowers don’t make payments each month. Instead, the full loan balance is due when you sell the home, move out, or pass away. (If there is more than one person on the loan, the balance is due when the last person passes away.) After the last person on the reverse mortgage dies, the estate must settle the balance due — meaning it’s possible you may not leave behind any inheritance to your loved ones.

Because you still own the home when you have a reverse mortgage, you’re responsible for paying property taxes and insurance and keeping up with maintenance. If you don’t keep up with these costs, the lender can use the loan funds to pay them or require you to repay your reverse mortgage in full.

Rate Types for Reverse Mortgages

How does interest work on a reverse mortgage? That depends on the type of rate you go with. You can either get a reverse mortgage with a fixed rate or an adjustable rate.

Fixed Rate

A fixed-rate reverse mortgage is one in which the interest rate stays constant over the life of the loan. This can make it easier to estimate how much the loan balance will grow over time, but lenders typically require you to take the payment as a lump sum when you go this route.

Adjustable Rate

Also known as a variable-rate reverse mortgage, an adjustable-rate reverse mortgage usually starts with a lower interest rate to attract borrowers, but these can change over time based on the state of the market. Rates are tied to a specific index; as that index increases or decreases, so too does the interest rate.

Recommended: HECM for Purchase Program

Factors Impacting Reverse Mortgage Rates

Several factors can impact the interest rate of a reverse mortgage, including:

•   Current market rates

•   The value (and location) of the home

•   Your age

•   How you choose to access the funds

•   The market (if adjustable rate)

The Takeaway

Reverse mortgages are one way for older Americans to tap into the equity they’ve built in their homes, but there are some risks with going this route. That’s why counseling is required before getting a reverse mortgage. Costs can also be high for reverse mortgages, largely due to their interest rates. If you explore a reverse mortgage but decide it’s not for you, you can consider alternatives, such as a home equity line of credit.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

Are reverse mortgage rates higher than regular mortgages?

Reverse mortgage rates tend to be higher than regular mortgages, but a number of factors can impact the rate you get. Rates are more comparable to home equity loans and home equity lines of credit.

Can I negotiate a lower reverse mortgage rate?

You can always try to negotiate your reverse mortgage interest rate before signing. However, understand that the lender can back out until closing, just like you.

When do reverse mortgage rates adjust?

Reverse mortgage rates adjust when the index they’re tied to goes up or down. This only applies to adjustable-rate reverse mortgages. Fixed-rate reverse mortgages are constant for the duration of the loan.

Photo credit: iStock/andreswd

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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The average homebuyer needs an annual salary of about $150,000 to afford a $500,000 mortgage. However, if you have a lot of debt to your name, such as student loans or credit card debt, you may need to lower your max home price.

Several factors beyond income affect how much home you can afford and how much lenders are willing to let you borrow. These include your debt-to-income (DTI) ratio, your employment, your credit score, and the size of your down payment. Below, we’ll analyze the income needed for a $500,000 mortgage and help you determine how much house you can afford.

Income Needed for a $500,000 Mortgage

Mortgage lenders examine more than just your income when approving you for a mortgage. For instance, they’ll also review how much money you have saved to ensure you can cover closing costs, which generally range from 3% to 6% of the loan amount. Assuming no down payment, closing costs for a $500,000 home would amount to $15,000 to $30,000.

Mortgage lenders will also consider:

•   How big your down payment is

•   Your credit score

•   Your employment history

•   Your current debts

Lenders will also want to ensure you make enough money (and have low enough debts) to afford your monthly payments. So how much income do you need for a $500,000 home mortgage loan? Experts often recommend using the 28/36 rule to figure this out. According to this rule:

•   Your annual housing costs should be no more than 28% of your annual income. Someone who earns $150,000 a year could spend up to $3,500 per month on housing costs before hitting the 28% mark.

•   Your total debts — the mortgage plus any other debts, such as student loans, car loans, and personal loans — should not exceed 36% of your annual income. So if you’re drowning in credit card debt, you may need to lower your expectations on how much house you can afford, even if you make $150,000.

Having trouble determining if you make enough money for a $500,000 home? Use our home affordability calculator to figure it out.

How Much Do You Need to Make to Get a $500K Mortgage?

By the 28/36 rule, you need to make $150,000 a year to afford a $500,000 mortgage. However, if you have a significant amount of debt, you may need to aim for a lower mortgage amount to keep your total debt below 36%.

Other factors can impact how much you need to make to get a $500,000 mortgage, including:

•   Property taxes in that city and state

•   The cost of homeowners insurance

•   Current interest rates

•   The type of mortgage loan you’re getting

•   The amount of money you have for a down payment

What Is a Good Debt-to-Income Ratio?

In general, the max debt-to-income (DTI) ratio for buying a house is 36%. Debt should account for no more than 36% of your monthly income. That said, there are scenarios where lenders will allow a higher DTI. For instance, DTI ratios can go as high as 43% for a qualified mortgage. In some cases, Fannie Mae might allow for a mortgage loan that would put a borrower at a 50% DTI ratio.

What Determines How Much House You Can Afford?

Calculating the mortgage that you can afford involves a lot of factors, such as:

•   Income: No surprises here. How much money you make has a major impact on how much you can spend on a mortgage. Don’t forget: It’s not only the cost of the house itself. You also need to factor in the interest rate, private mortgage insurance (usually required if your down payment is less than 20%), homeowners insurance, and property taxes.

•   Debt: In addition, you need to factor in how much you spend each month on debt, such as credit cards, student loans, and car loans. On top of debt, factor in other monthly expenses, such as health care costs, grocery bills, and utilities.

•   Credit score: If you have a low credit score, it will be harder to get approved for a mortgage, regardless of your income. If you are approved for a mortgage with bad credit, you’ll likely have a high interest rate, which means larger monthly payments. This might mean you need to aim for a less expensive home.

•   Where you live: Your location also impacts how much house you can afford. A $500,000 home in an area with a low cost of living is likely to be much larger and well cared for than a home in an urban or coastal area, where housing costs are much higher. Use our guide to the most affordable places to live in the U.S. to help keep housing costs down.

What Mortgage Lenders Look For

During the mortgage preapproval process, lenders will consider a number of factors. The review is typically more intense than the process of getting a credit card or personal loan. For instance, mortgage lenders will want to review:

•   Your income (they typically want to see stable, predictable income, though it is possible to get a mortgage without regular income) and assets

•   Your credit history (the credit score needed to buy a house is 620 for most mortgage types)

•   The size of your down payment (the larger the down payment, the lower your monthly payments over the loan term)

•   Any existing debts, such as personal loans, car loans, student loans, and credit cards

$500,000 Mortgage Breakdown Examples

There are a number of factors that impact how a $500,000 mortgage breaks down, including the interest rate (fixed or adjustable) and loan term (15 or 30 years, for example). The cost of property taxes and homeowners insurance where you live also impact your mortgage; in fact, we advise using a mortgage calculator with taxes and insurance factored in when determining how much you can afford.

To understand how monthly payments on a $500,000 mortgage can vary based on interest rate and loan term, consider the following examples:

•   A $500,000 loan with an interest rate of 6.00% over 30 years would cost $2,998 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 7.00% over 30 years, would cost $3,327 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 6.00% over 15 years would cost $4,219 per month before taxes and insurance.

•   A $500,000 loan with an interest rate of 7.00% over 15 years would cost $4,494 per month before taxes and insurance.

As you can see, the monthly payments for a 15-year loan at these interest rates would require that you earn more than $150,000 in order to keep your payments below 28% of gross income.

Pros and Cons of a $500,000 Mortgage

A $500,000 mortgage has both pros and cons to consider.

Pros:

•   You can afford a larger home, ideal if you have multiple children.

•   A $500,000 home is likely to require fewer renovations and updates.

Cons:

•   It can be harder to qualify for a mortgage of this size.

•   Monthly payments are much higher than a smaller mortgage.

How Much Will You Need for a Down Payment?

Previously, families strived to save 20% for a down payment on a house, but that’s not always a practical approach in today’s housing market. You can get a conventional mortgage loan with much less down, depending on the lender.

You can also consider alternative mortgage loan types, which have different down payment requirements.

•   FHA loans only require 3.5% down; for a $500,000 house, that’s $17,500. However, FHA limits are just below $500,000 for most parts of the country ($524,225 for 2025), so you’d need to put enough down to keep the borrowed amount below that threshold.

•   VA loans (from the U.S. Veterans Administration) and USDA loans (from the U.S. Department of Agriculture) allow you to get a mortgage with no money down, but these loans are only available to select borrowers.

Can You Buy a $500K Home With No Money Down?

It’s possible to buy a $500,000 home with no money down if you qualify for a VA loan or USDA loan. However, only veterans, certain service members, reservists, and surviving spouses can qualify for a VA loan, and USDA loans are limited to certain properties in rural and some suburban areas.

Can You Buy a $500K Home With a Small Down Payment?

You may be able to buy a $500,000 home with a small down payment through an FHA loan (assuming you put down enough to borrow below the FHA limit). Some conventional mortgage lenders will allow qualified first-time homebuyers for as little as 3% down.

Recommended: Home Loan Help Center

Is a $500K Mortgage With No Down Payment a Good Idea?

If you don’t have the money saved up for a down payment or want some liquid funds in your savings account for emergencies, it might be OK to get a $500,000 mortgage with no down payment. Keep in mind, however, that you’ll have no equity in the house at the start of the term. You may also be required to carry private mortgage insurance when you make a small down payment (or no down payment at all).

Can’t Afford a $500K Mortgage With No Down Payment?

Here’s how to work toward making your monthly mortgage payment more manageable.

Pay Off Debt

Wait to take on a mortgage loan until you’ve wiped out some of your bigger debts. For example, getting rid of a monthly student loan payment or credit card payment can free up more funds to put toward a higher monthly mortgage payment.

Look Into First-Time Homebuyer Programs

Research various first-time homebuyer programs if this is the first time you’re buying a house. For instance, if you can come up with a 3.5% down payment, you can possibly get an FHA loan for (nearly) $500,000.

Build Up Credit

You can qualify for a lower interest rate on your mortgage if you take care of your credit score. Focus on making on-time bill payments, reducing your credit utilization, and paying down debts. Remember: A lower interest rate means lower monthly payments.

Start Budgeting

If the monthly payment for a $500K mortgage with 0% down seems too tight right now, find ways to add more flexibility to your budget. Take up a side hustle to increase your income or cut unnecessary expenses from your spending, such as streaming services or dining out.

Mortgage Tips

Hoping to buy a $500,000 home this year? We’ve got several mortgage qualification tips to help.

For instance, make sure you know the difference between fixed- and adjustable-rate mortgages and when it might make sense to refinance your mortgage, and always shop around by getting prequalified with various lenders to ensure you get the best deals. Focus on your credit score before applying, but once you’re approved for a mortgage, don’t open any new credit accounts until after you close on the house.

The Takeaway

The income needed for a $500,000 mortgage depends on several factors, including your debt, down payment, and credit score. That said, adhering to the 28/36 rule means you’d need to make about $150,000 a year to get a $500,000 home.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much income do I need for a $500K mortgage?

By following the 28/36 rule, you’d need an annual income of $150,000 for a $500,000 mortgage. However, if you have significant debts, you may need to aim for a lower home price, even with a high household income.

Can I afford a $500K house on $100K?

It would be hard to afford a $500K house on an annual income of $100,000. The only way it might be doable is to make a very large down payment, thereby reducing the amount of money you need to borrow and, as a result, your monthly payments.

Can I afford a $500K house if I make $200K?

A $200,000 salary should be more than enough for a $500,000 home, unless you have significant debt.

Photo credit: iStock/cofotoisme

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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An annual income of about $90,000 could allow you to afford a $300,000 mortgage, assuming you don’t have other significant debt, such as student loans. But how much house you can afford will depend on multiple factors, including credit history and how much you have saved for a down payment, to name a couple. Here’s a closer look at how much income may be needed for a $300,000 mortgage.

Income Needed for a $300,000 Mortgage

Income is one of several variables that lenders consider for mortgage approval — it’s a key indicator of a borrower’s ability to pay back the mortgage loan. So how much income is needed for a $300K mortgage? You’ll need to demonstrate that you can afford the down payment, closing costs (typically 2% to 6% of the home sale price), and monthly mortgage payment.

Lenders consider multiple forms of income, including dividends, investment, and child support toward a borrower’s gross income.

Recommended: Tips to Qualify for a Mortgage

How Much Do You Need to Make to Get a $300K Mortgage?

What income is needed for a $300K mortgage? Running the numbers with a home affordability calculator shows that an income of $86,000 – $94,000 is needed for a $300,000 mortgage. This assumes an interest rate of 7.00% and a 30-year loan term.

A mortgage calculator shows that the monthly payment would be $1,995 if you put 20%, or $75,000, toward a down payment on a property that costs $375,000. Of course, having $75,000 saved up for a down payment is a tall order, and many homebuyers will put down less.

Borrowers can use the 28/36 rule to ensure they can afford their mortgage and debt payments. This dictates that a home payment should be at or below 28% of income, while total debt payments should not exceed 36% of your income. In the example above, you’d need to make $7,166 a month ($86,000 a year) to afford a $1,995 mortgage payment per the 28/36 rule. But to make the mortgage payment with property taxes and home insurance, you’ll need to earn more like $94,000, as monthly payments would top $2,600.

Different types of mortgage loans may require private mortgage insurance (PMI), an additional expense that’s lumped into a monthly payment. If you make a down payment that is less than 20%, you will likely need to pay for PMI in addition to other monthly housing costs. Putting down 20% will help you avoid PMI and help secure a more competitive rate for a lower monthly mortgage payment.

Having proof of income, such as W-2s and tax returns, will help potential homebuyers be prepared for the mortgage preapproval process and application.

What Is a Good Debt-to-Income Ratio?

Your debt-to-income (DTI) ratio represents how much you owe in debt each month compared to how much you earn. The U.S. government’s Consumer Financial Protection Bureau recommends that homeowners have a DTI ratio of 36% or less. However, lenders may accept a DTI ratio of up to 43%, depending on the loan type and other borrower criteria.

Borrowers earning $90,000 a year (or $7,500 a month) can have up to $2,700 in total monthly debt to maintain a DTI ratio of 36% or less.

What Determines How Much House You Can Afford?

Figuring out the income needed for a $300K mortgage is an important first step to understanding how much house you can afford. But there are other factors, including your credit score and savings for a down payment, that will determine your home-buying budget if you plan on financing a home purchase.

Calculating your other existing debts, such as car loans and student loans, is also essential. Using the 28/36 rule, if you earn $90,000 a year, your total debt, including a future mortgage payment, should not exceed $2,700. With a $1,995 mortgage payment, this would leave $705 for other recurring debts.

Where you plan on buying a home also affects home affordability. Home prices and the cost of living by state can differ substantially. A $300,000 mortgage could give you a range of options in some places, but it may be limiting, unless you have a large down payment, in pricier locations.

Recommended: Most Affordable Places to Live

What Mortgage Lenders Look For

Lenders look at a range of factors when evaluating a borrower’s ability to repay a mortgage loan. Besides income, they’ll consider a borrower’s credit history, existing debt, employment, assets, and money saved for a down payment.

$300,000 Mortgage Breakdown Examples

How much you’ll pay for a $300,000 mortgage can vary based on the interest rate, loan term, taxes, and insurance. Crunching the numbers with a mortgage calculator with taxes and insurance included can give a more accurate estimate of your expected monthly mortgage payment.

Let’s suppose you buy a $375,000 house with $75,000 down. You secure a 30-year fixed mortgage with a 7.00% interest rate. Your monthly payment, including the principal, interest, insurance, and taxes would amount to about $2,600 (the exact number will depend on your property tax and insurance rates).

In another example, reducing the loan term to 15 years with the same interest rate would up the monthly payment to $3,300, but save thousands in interest payments. Meanwhile, locking in a lower rate of 6.50% on the 30-year fixed mortgage would lower the monthly payment to around $2,500.

Pros and Cons of a $300,000 Mortgage

Given that buying a home is often the largest purchase made in one’s lifetime, it’s worth weighing the pros and cons of a $300,000 mortgage. The average home listing price was $442,500 in May 2024, according to Realtor.com®. So unless you have a sizable down payment or look in a cheaper market, your homebuying options may be somewhat limited with a $300,000 mortgage.

On the other hand, a $300K mortgage might mean taking on less debt than the average homebuyer in 2024. Lower monthly payments could mean more funds for renovations or achieving other financial goals.

How Much Will You Need for a Down Payment?

The down payment will depend on the loan type. Most borrowers can expect to put between 3% (for qualifying first-time homebuyers) and 20% of a home’s purchase price toward a down payment.

Can You Buy a $300K Home With No Money Down?

You could get a mortgage with no down payment with either a government-backed loan from the U.S. Department of Veterans Affairs (VA) or from the U.S. Department of Agriculture (USDA). Both loan types are insured by the federal government and allow eligible homebuyers to purchase a home with no money down.

Borrowers must meet income and location eligibility requirements to qualify for a USDA loan, whereas VA loans are intended for eligible active-duty servicemembers, veterans, National Guard and Reserves members, and surviving spouses.

Can You Buy a $300K Home With a Small Down Payment?

If you don’t meet the requirements for a USDA or VA loan, you could still get a $300K mortgage with a small down payment. With an FHA loan from the Federal Housing Administration, first-time homebuyers could put just 3.5% down on a house if their credit score is 580 or higher. Qualified first-time home buyers with a credit score of 500 to 579 will need to put at least 10% toward a down payment on a FHA loan.

Alternatively, some homebuyers could qualify for a conventional mortgage loan that requires a down payment as low as 3% – 5%.

Is a $300K Mortgage with No Down Payment a Good Idea?

Saving up for a down payment can be challenging, and homebuyers may want to reserve cash for renovations or other financial goals. However, putting less money down means taking out more debt and paying more interest over the life of the loan. Also, keep in mind that it will take longer to build equity in your home without a down payment.

Can’t Afford a $300K Mortgage With No Down Payment?

If you can’t afford the monthly payment on a $300K mortgage with no down payment, here are a few steps that could improve your qualifications as a borrower.

Pay Off Debt

Paying off debts can improve your DTI ratio and increase your home-buying budget. Focusing on recurring debts that you can pay off in full in the short-term can provide the quickest results, as your monthly debt burden will immediately go down. It may also be a good idea to prioritize high-interest debt to avoid paying more in interest.

Look into First-Time Homebuyer Programs

If you’re a first-time homebuyer, you may qualify for more flexible loan terms and programs to make homeownership more accessible. Besides offering a minimum down payment of 3.5%, FHA loans allow first-time buyers to finance their closing costs. Additionally, down payment assistance programs can provide funding to help cover the down payment cost.

Build Up Credit

Improving your credit score could help secure a lower interest rate and increase your homebuying budget. Making minimum monthly payments and keeping your credit utilization — the percentage of credit you’re using on credit cards and other lines of credit — below 30% are two useful strategies.

Start Budgeting

Building a budget can help with paying off debt, saving up for a down payment, and other financial goals. Once implemented, your budget can help determine how much you can afford to pay for a monthly mortgage payment.

Alternatives to Conventional Mortgage Loans

If you can’t qualify for a conventional mortgage or government-backed loan, there are some other options to look into.

•   Balloon mortgage: Involves low monthly payments for a short period of time before the entire loan balance comes due at the end of the term.

•   Interest-only mortgages: Allows borrowers to make interest-only payments for a set term before having to pay principal and interest or consider a mortgage refinance.

•   Rent-to-own: Lets renters put a portion of their monthly payment toward purchasing the home from a landlord based on an agreement between both parties.

Mortgage Tips

Particularly if you are a first-time homebuyer, there is a lot to learn about applying for a mortgage and purchasing a home. For example, you can put in a few basic facts about your finances and prequalify for a mortgage loan. But this is different from being preapproved for a loan, and it’s important to understand mortgage prequalification vs. preapproval before you move forward.

Consulting a home loan help center can help you learn other mortgage tips.

The Takeaway

The income needed for a $300K mortgage depends on several variables, including credit history, down payment, and existing debt. If you earn around $90,000 a year, you can likely afford the mortgage payment on a home loan this size, unless you have significant debt. Putting more toward a down payment, paying off debt, and keeping up good credit habits could help you increase your home-buying budget.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much should you make to afford a $300K house?

To afford a $300,000 house, you’ll need to make more than $83,000 a year, assuming you don’t have any significant recurring debt.

What is the monthly payment on a $300K mortgage?

The monthly payment on a $300,000 mortgage can range from $1,950 to $2,600 based on the loan term, interest rate, taxes, and insurance.

Can I afford a $300K house on a $70K salary?

It would be challenging to afford a $300,000 house on a $70,000 salary, unless you have saved up for a very large down payment or have other sources of income in addition to your salary. A $250,000 house may be more affordable for borrowers making $70,000.

Photo credit: iStock/Fabio Camandona

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q224-1906744-V1

A balloon mortgage is where you make low monthly payments for a short period of time, and then pay off the entire loan balance at the end of the term. Balloon mortgage terms are typically five to seven years, but can be as little as two years. The payments leading up to the final payment, which is known as the balloon payment, can be interest-only or a combination of principal and interest.

Note: SoFi does not offer balloon mortgages at this time.

The idea of low initial payments sounds enticing to many homebuyers, so let’s take a look at what exactly a balloon mortgage is and how it works, including pros and cons.

What Is a Balloon Mortgage?

A balloon mortgage is a mortgage with a shorter-than-normal term — maybe five or seven years as opposed to 15 or 30 — with relatively low monthly payments but a large lump sum due at the end of the term.

Typically, people who take out a balloon mortgage plan on selling the home or refinancing before the balloon payment is due. Some may expect to receive a large sum of money that can be used to pay off the loan.

Do Balloon Mortgages Still Exist?

Balloon mortgages do exist, although they are less common today than they were before the 2007-2008 financial crisis, which found many homeowners owing more on their loan than their property was worth. Balloon mortgages are not considered “qualified mortgages” — meaning they have an unusually high risk profile. Because they are higher risk, balloon mortgages may be offered only by smaller lenders.

Balloon mortgages are sometimes used for business loans, in which the founder wishes to have money to spend on launching the business and plans to repay it once the business is up and running and making a profit.

How Do Balloon Mortgages Work?

In technical terms, a balloon mortgage is one that hasn’t undergone full mortgage amortization. Although the payments are based on a 30-year term, the actual term is much shorter, which means a lot of money is left over at the end (hence the lump payment due).

Types of Balloon Mortgages

There are two ways a lender might calculate payments on a balloon mortgage:

Amortization Over a Longer Loan Term

In this scenario, the fixed loan payments may be based on a 30-year loan term even though the actual term is just 15 years. The borrower would make the relatively affordable lower payments for 15 years and then the loan balance would be due in a mortgage balloon payment.

Interest-Only Payments

Here, the borrower would pay only the interest on the loan for an initial period, and then the principal balance would be due in a balloon payment.

Balloon Mortgage Example

Below you can see how the two types of balloon mortgages might play out for a borrower who has a balloon mortgage for $300,000.

10-Year Balloon Loan at 6.50% With 30-Year Amortization

5-Year Balloon Mortgage With Interest-Only Payments at 6.50%

Why Would Anyone Want a Balloon Mortgage?

Being suddenly faced with a lump sum mortgage payment due might sound like a nightmare to most of us. So when would such a financial product actually be an attractive option?

It’s worth noting that balloon mortgages sometimes carry lower interest rates than 30-year fixed-interest mortgages, and in some cases, they can be easier to qualify for. That can make them tempting to those in the following situations:

•   The borrower plans to sell the house and move before the balloon sum is due. This way, the lump sum is paid off with proceeds from selling the house — and in the meantime, the borrower benefits from the lower interest rate. This assumes, of course, that the home holds its value or increases in value in a relatively short time period.

•   The borrower plans to refinance the loan once the balloon sum is due. This is a common scenario, and may give a borrower the opportunity to benefit from the lower interest rate of the balloon mortgage in the short term while buying time to build credit and shop for a better loan in the long term.

•   The borrower expects to have the money to pay the balloon sum by the time it’s due. Maybe they have another property they plan to sell or are banking on an inheritance or some other savings plan — and they might save money in the long run on interest compared with taking out a traditional 30-year mortgage.

That said, there are obviously risks to this approach that may outweigh the benefits.

Recommended: Guide to Buying, Selling, and Updating Your Home

Pros and Cons of Balloon Mortgages

What are the specific advantages and disadvantages of balloon mortgages?

Pros of a Balloon Mortgage

•   Possible lower interest rate. Balloon mortgages may carry a lower interest rate than mortgages with longer terms, depending on the lender’s criteria and the borrower’s creditworthiness.

•   Possible lower monthly payment. Lower interest rates can translate to lower monthly payments, making the mortgage more affordable and easier to fit into the monthly budget (at least in the short term).

•   May pay off the loan quicker. If a borrower is able to come up with the lump sum payment at the time it’s due, a balloon mortgage may allow a purchaser to pay off the house more quickly.

•   Possibly easier to qualify for. Because of their lower payment, balloon mortgages may be easier for some consumers to qualify for.

Cons of a Balloon Mortgage

•   Interest-only payments. In some cases, the monthly payments made during the term of a balloon mortgage may be interest-only — which means borrowers aren’t building equity in their homes during that time.

•   Buyers may be unable to sell their house or refinance in time. To avoid the lump sum payment, borrowers must sell or refinance. If rates have risen or they can’t sell, they may face mortgage foreclosure.

•   Buyer may pay more in fees. Even if successful, refinancing can incur fees that may mitigate some of the savings earned by taking out the balloon loan in the first place.

•   Refinancing may increase monthly payment. After refinancing, monthly mortgage payments are often higher, especially if the balloon mortgage was interest-only.

•   Risky for the borrower. Other unforeseen circumstances can wreak havoc on a balloon borrower’s plans, leaving them with a huge lump sum payment they can’t afford.

Other Types of Mortgages to Consider

Although balloon loans can be relatively easy to qualify for and do have some benefits, they can also be risky. We know what they say about best-laid plans — and even those with bulletproof plans sometimes encounter unforeseen circumstances.

What if the money that was set aside for the balloon payment has to be spent on a medical emergency or another surprise expense? What if the sale of the property or the annual bonuses fall through? What if, when it’s time to refinance, rates are actually higher or the borrower’s credit history is less favorable? What if property values have dropped precipitously and refinancing options are hard to come by?

Fortunately, there are plenty of other types of mortgages that can meet borrowers’ needs without creating an unduly risky scenario.

Fixed-Rate Mortgages

A fixed-rate mortgage, or FRM, is one in which the interest rate is fixed. The borrower pays the same interest rate over the entire term of the loan, usually 15 or 30 years.

The fixed interest rate also means the monthly payment amount is fixed, making this a popular type of mortgage for those who want to plan ahead to ensure that their mortgage payment will fit their budget.

FRMs protect buyers from rising interest rates; no matter what happens with the market, they can rest assured their rates will stay the same.

On the other hand, FRMs can preclude borrowers from benefiting when interest rates drop — which leads us to another popular type of mortgage.

Adjustable-Rate Mortgages

An adjustable-rate mortgage, or ARM, has an interest rate that fluctuates over the term of the loan based on the market. These loans generally begin with a relatively short period when the interest rate is fixed — known as the fixed-rate period — before switching to the variable interest rate.

ARMs are attractive for a variety of reasons. For one thing, the interest rate during the introductory fixed-rate period is often lower than it is in FRMs, meaning the borrower can enjoy smaller payments at the beginning of the mortgage.

ARMs may also allow borrowers to benefit when market rates drop. Though, if market rates increase, so can the borrower’s monthly payment. Some ARMs include clauses limiting the annual and life-of-loan adjustments and creating rate caps, which can help protect buyers, but it’s still not the same kind of peace of mind available from FRMs.

Recommended: Fixed vs. Adjustable Rate Mortgages: What’s the Difference?

More Ways to Find the Right Mortgage for Your Needs

Any mortgage — indeed, any loan — carries some degree of risk. But there are ways to mitigate the inherent hazards involved with owing a large debt. For one thing, figuring out how much house you can afford is an important first step to help ensure that you don’t overspend and end up with an unaffordable mortgage.

Once you’ve got a home-buying budget locked in, researching types of mortgage loans is a great next step. And finally, shopping around at different lenders for the best mortgage terms available can also help you save money in the long run.

Government-insured loans can help borrowers qualify with low-interest rates and down payments — as little as 3.5% for FHA loans (backed by the Federal Housing Administration) and even 0% for U.S. Department of Agriculture (USDA) loans in approved rural areas. But conventional loans, or those offered from private lenders, can also offer competitive terms and incentives.

The Takeaway

A borrower with a balloon mortgage makes low payments for, say, 5 or 7 years before a very large “balloon” payment is due to pay off the mortgage. Financing your home purchase this way can be riskier than other loan types, even though the upfront costs are enticingly low. Fortunately, there are other ways to borrow money for a home purchase that involve less risk.

FAQ

What is considered a balloon mortgage?

A balloon mortgage is one in which the borrower makes relatively low payments for an initial period of time (5, 7, or 15 years) before one very large mortgage “balloon” payment comes due.

Do balloon mortgages still exist?

Balloon mortgages do exist, although they are less commonly used for home purchases than they were in the past. Today they are used more often for commercial loans.

Why would you want a balloon mortgage?

Borrowers are attracted to balloon mortgages because of the period of low monthly payments at the outset of the loan term. They may plan to sell or refinance before the mortgage balloon payment comes due, or may think that they will come into other money — through an inheritance, for example — that will help them afford the balloon payment. However there is always risk involved in these scenarios.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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In general, you need an income of at least $64,000 a year to afford a $200,000 mortgage. If you’re carrying significant debt, however, like student loans or high-interest credit cards, you may need to buy something slightly less expensive on such a salary.

Several factors impact how much house you can afford and what lenders are willing to give you on your salary, including your credit history, your down payment, and your debt-to-income ratio. We’ll break down these and other factors as we explore the income needed for a $200,000 mortgage.

Income Needed for a $200,000 Mortgage

Mortgage lenders typically don’t list strict income requirements for a home loan, though they will want to know that you can afford closing costs, which typically range from 3% to 6% of the loan principal. For simplicity’s sake, assuming no money down, you would need $6,000 to $12,000 for a $200K mortgage in a bank account.

Mortgage lenders will, however, analyze your annual income to ensure you’re able to keep up with your estimated monthly mortgage payments. In addition, lenders will consider other factors, such as your:

•   Debts

•   Employment

•   Down payment

•   Credit history

Even if a lender would approve you for a $200,000 mortgage, it’s a good idea to decide for yourself if you can actually afford it. Many experts recommend using the 28/36 rule. This means that housing costs should account for no more than 28% of your income, and you should spend no more than 36% of your income on all debts combined.

Assuming you have minimal debt, that means you can afford to spend 28% of your gross monthly income on a mortgage. (That’s how we get our rough estimate of a $64,000 salary for a $200,000 home.) However, if you have major debt elsewhere — car loan, student loans, personal loans, and credit cards, for instance — you may need to keep your mortgage debt lower so you don’t exceed 36% of your total income.

Use a home affordability calculator if you’re not sure where to start.

How Much Do You Need to Make to Get a $200K Mortgage?

In general, we recommend making at least $64,000 a year if you have a $200K mortgage. However, several factors can impact this, including:

•   What other debts you have

•   How much you have saved for a down payment

•   The type of mortgage loan you’re applying for

What Is a Good Debt-to-Income Ratio?

In keeping with the 28/36 rule, lenders prefer to see a debt-to-income (DTI) ratio of 36% or lower. This is not a hard-and-fast rule, however. A qualified mortgage lender may look for a DTI ratio of 43% or less. In certain cases, Fannie Mae could allow a DTI as high as 50% for specific mortgage loans. To compute your DTI ratio, add all your monthly debts and divide by your gross monthly income, then multiply by 100.

What Determines How Much House You Can Afford?

Several factors impact how much house you can afford, including:

•   Your income: The amount of money you make dictates how much you can afford to spend on a monthly mortgage payment, including property taxes, homeowners insurance, and private mortgage insurance (PMI) when required.

•   Your debt: Other outstanding debts mean your funds are limited for new loans. If you’ve got to pay down other debts each month, you may want to aim for a less expensive home (and thus a smaller mortgage).

•   Your location: A $200,000 home looks a lot different depending on where you live. In places with a low cost of living, you might be able to get a fully renovated home. In coastal and urban areas, $200K doesn’t go as far: You may get a small home or a home in need of major repair. Hoping to get the most bang for your buck? Here are the most affordable places to live in the United States.

•   Your credit score: Even if you have the income to afford a hefty mortgage now, a spotty credit history can turn off lenders. They may either offer you an impossibly high interest rate or deny your loan request, depending on how low your score is.

Recommended: Mortgage Calculator

What Mortgage Lenders Look For

When you begin the mortgage preapproval process, lenders will be looking for a few factors to determine if you’re eligible for a loan:

•   Stable, predictable income (though it’s not impossible to get a mortgage without regular income)

•   Your assets

•   Your credit history

•   The size of your down payment

•   Any existing debts, including credit cards, student loans, personal loans, and car loans

$200,000 Mortgage Breakdown Examples

Several major factors can impact how a mortgage shakes out, including your down payment amount, the interest rate (and whether it’s fixed or adjustable), and the loan term.

You should also factor in homeowners insurance and property taxes. We recommend using a mortgage calculator with taxes and insurance for an accurate picture.

Here are a few examples of how your monthly payments on a $200,000 mortgage can vary:

•   A $200,000 loan with $20,000 (9%) down and an interest rate of 7.00% over 30 years, with taxes and insurance, would cost an average of $1,822 a month.

•   A $200,000 loan with $20,000 (9%) down and an interest rate of 7.00% over 15 years, with taxes and insurance, would cost an average of $2,229 a month.

•   A $200,000 loan with 20% down and an interest rate of 7.00% over 30 years, with taxes and insurance, would cost an average of $1,622 a month.

•   A $200,000 loan with 20% down and an interest rate of 7.00% over 15 years, with taxes and insurance, would cost an average of $2,089 a month.

You’ll notice that a 15-year loan results in higher monthly payments; however, because the loan is only 15 years, the homeowner would spend significantly less in interest over the life of the loan and would be debt free much sooner.

How Much Will You Need for a Down Payment?

How much you need for a down payment depends on the type of loan you’re applying for and your other financial goals. Conventional wisdom used to advise putting 20% down on a house, but that’s often unrealistic for today’s homebuyers.

Certain loan types require significantly less down. An FHA loan (from the Federal Housing Administration) requires as little as 3.5% down. A VA loan (from the U.S. Veterans Administration and USDA loans (from the U.S. Department of Agriculture) don’t require any down payment.

Can You Buy a $200K Home With No Money Down?

If you can qualify for specific types of loans, such as a VA loan or USDA loan, it’s possible to buy a $200,000 home with no money down. These loans, however, have strict eligibility requirements that are limited to a small percentage of borrowers.

Can You Buy a $200K Home With a Small Down Payment?

FHA loans are an option for borrowers who can’t come up with 20% or even 10% money down for a home. With a government-backed FHA loan, you can put down as little as 3.5%. In the case of a $200K mortgage, that’s $7,000. Some conventional lenders also allow as little as 3% down for first-time homebuyers.

Is a $200K Mortgage With No Down Payment a Good Idea?

In today’s housing market, it’s hard to come buy a house that is less than $200,000. A $200K home — or one that’s even more expensive — may be your only option. If it is your only option, and you can’t come up with the funds for a down payment, a 0% down mortgage could be a good idea.

However, keep in mind that you’ll have no home equity at the start of the loan, and you’ll likely have to pay PMI until you’ve paid off at least 20% of the home. It also means your monthly payments will be larger.

Recommended: Home Loan Help Center

Can’t Afford a $200K Mortgage With No Down Payment?

When you don’t put any money down when buying a home, monthly payments will be higher. If you find they’re too high for you to afford, you’ll need to make some changes before you can buy a home. Here are some ideas:

Pay Off Debt

Focus on other debts, such as high-interest credit cards and student loans. If you’re able to wipe out debt, you’ll have more money in your monthly budget to spend on housing costs.

Look Into First-Time Homebuyer Programs

First-time homebuyer programs can help you out when you’re trying to get your first mortgage. For instance, if you can save up 3.5%, you can qualify for an FHA loan with an affordable interest rate.

Build Up Credit

If you take the time to focus on your credit score (make on-time payments, pay down debts, reduce credit utilization), you may get a lower interest rate on a loan offer. This can help keep your monthly payment down.

Start Budgeting

If all else fails, put the new house on hold and start focusing on growing your savings. You can do this by finding a new income source, but you can also analyze your budget and cut out unnecessary expenses. Try getting rid of some streaming services, dining out less, and finding ways to reduce your utility bills.

Mortgage Tips

We’ve put together several tips for qualifying for a mortgage, but here’s the quick version:

•   Make sure you’re good to go before applying: Spend time with your budget to understand what you can afford, focus on paying down debts to reduce your DTI, and check your credit score to ensure it’s strong enough to qualify.

•   Understand the language: Knowing the difference between fixed-rate and adjustable-rate mortgages is crucial. Research other terms such as principal, escrow, mortgage refinance, and PMI to make sure you’re armed with all the info you need.

•   Shop around: Get prequalified with multiple lenders to ensure you find the right mortgage loan for you.

The Takeaway

The income needed for a $200,000 mortgage is roughly $64,000, but so much of that depends on other factors, including your down payment, your credit score, the type of loan you’re getting, and your other debts.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much income do I need for a $200K mortgage?

We estimate that the average homebuyer needs a $64,000 annual income for a $200,000 mortgage, but several factors can impact this.

Can I afford a $200K house on $50K?

While we recommend a $64K salary for a $200,000 mortgage, you may be able to afford a $200,000 house on $50,000 if you have a large down payment saved up and have minimal other debts.

Can I afford a $200K house on a $60K salary?

At $60,000, you might be able to handle a $200,000 mortgage if your other debts are minimal and you have a good-sized down payment ready to go.

Photo credit: iStock/martin-dm

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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