How Much House Can I Afford? Breaking Down the Math Behind a $500,000 Purchase

Buying a home is a major milestone—and one of the first questions we hear from future homeowners is the classic: “How much house can I afford?” Today, we’re diving into the numbers behind a $500,000 home purchase so you can understand what it really takes to qualify. Whether you're a first-time buyer or just trying to make sense of the math, here's a step-by-step look at how the numbers shake out. Watch our full discussion here: How much do I need to buy a home?

Step 1: Let's Talk Loan Type

For this example, we're using a conventional loan, which is the most common and straightforward financing route. First-time homebuyers can qualify with as little as 3% down, but for this breakdown, we’re going with 20% down to avoid PMI (Private Mortgage Insurance).

• Home Price: $500,000

• Down Payment (20%): $100,000

• Loan Amount: $400,000

  
  

Step 2: Your Monthly Mortgage Payment

Let’s estimate a 30-year fixed rate mortgage based on current interest rates. For a $400,000 loan, your principal and interest payment would be approximately:

• Monthly Principal & Interest: $2,528

Now we need to account for property taxes and homeowner’s insurance, which vary by location.

• Estimated Property Taxes: $416/month

• Estimated Homeowner’s Insurance: $350/month

• Total Estimated Monthly Payment: $3,294

⚠️ If you're in a state like California or Texas, insurance can vary wildly. Make sure you get multiple quotes and work with someone who will run a proper risk analysis.

Step 3: Understanding Escrows

Most lenders require escrowing taxes and insurance, which means they collect those payments monthly and pay the bills for you when they’re due. While it simplifies things, it also means higher upfront closing costs to fund that escrow account. If you choose not to escrow, be prepared to pay taxes and insurance directly when they come due.

Step 4: Let’s Talk Income—How Much Do You Need to Make?

Your ability to qualify is based heavily on your Debt-to-Income ratio (DTI). For conventional loans, the upper limit is usually 50% of your gross monthly income.

• Annual Housing Expense: $3,294 x 12 = $39,531

• Income Needed (Assuming No Other Debt): $39,531 ÷ 0.5 = $79,062/year

👉 This means that, in a perfect world where you have no other monthly debts (no car loans, credit cards, student loans), you’d need to make roughly $79,000/year to afford a $500,000 home.

💡 If you have other debts, you’ll need to factor those into the equation. For example, a $500 car payment could significantly reduce your housing budget.

Bonus: What About PMI?

If you put less than 20% down, you’ll need to pay Private Mortgage Insurance, which protects the lender—not you. PMI costs vary based on credit score and down payment, but they do count toward your DTI and monthly payment. If you can avoid it by putting 20% down, it’s usually worth it.

Final Thoughts

Buying a $500,000 home means more than just coming up with a down payment—it’s about understanding how your income, debts, and other monthly obligations all factor into your loan approval. This breakdown gives you a solid starting point, but for the most accurate numbers, connect with a mortgage professional who can run your specific scenario.