A mortgage loan of $700,000 may sound high. But if you’re in hot real estate markets like California, Hawaii, or Washington, DC, it may be closer to the norm — especially if you’re looking to buy a larger home. So the question is: do the monthly payments on a $700,000 mortgage fit your budget?
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Even before you make your first monthly payment, there are big costs that come with a $700,000 mortgage. The following are one-time expenses you will incur when buying your home.
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Earnest: A 20% down payment means you won’t have to pay for private mortgage insurance (PMI), but many conventional and FHA loans only require 3% to 3.5%, respectively, which would be $21,000 to $24,500 on a $700,000 mortgage. If you qualify for a VA or USDA loan, you don’t need a down payment at all.
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Closing costs: These are fees you pay on closing day in addition to your down payment. These could include home appraisal, underwriting, title search, registration fees and other related expenses. Closing costs often range from 2% to 5% of the loan amount, meaning you could pay between $14,000 and $35,000 to close.
Learn more about “closing cash,” or the total amount you’ll pay on closing day.
A mortgage payment is largely determined by the loan principal, interest rate and term length. Here’s what a $700,000 monthly mortgage payment might look like at different rates.
While a longer repayment term lowers your monthly payment, it also means you’ll pay a lot more in total interest. For example, let’s say you take out a $700,000 mortgage with a 30-year term and a 6.5% rate. In this case, you will pay $892,111 in total interest. But if you chose a 15-year term, you’d only pay $397,595 in interest.
Learn how to decide between a 30-year and 15-year mortgage.
Principal and interest aren’t the only components of a monthly mortgage payment. You will also pay some or all of the following costs:
Use Yahoo Finance’s free mortgage calculator below to see how factors like your interest rate and down payment will affect your monthly payment on a $700,000 mortgage. You can also enter information about property taxes, homeowners insurance, and more to get a more accurate idea of what you’ll be paying each month.
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To see the details of your monthly payments and what you will pay in the long run, select the ‘Amortization’ option above the calculator.
A mortgage amortization schedule shows a monthly breakdown of your payment, including how much is going toward interest versus principal.
This amortization schedule is for a $700,000 mortgage with an interest rate of 6.5% over a 30-year term. The monthly payment for principal and interest is $4,424 and I have rounded each number to the nearest dollar.
Larger mortgages can be risky for lenders, so expect stricter borrower requirements to prove your ability to repay. Here are some strategies to help you qualify for a $700,000 loan.
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Save a significant advance: A larger down payment directly reduces how much you borrow and also shows lenders that you can save.
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Increase your credit score: Mortgage lenders look for a high credit score and clean payment history as proof that you can borrow and repay responsibly – plus, a higher score can lead to lower rates.
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Reduce your debt-to-income ratio (DTI): If your total debt payments (including your home loan) are more than 36% of your income, lenders may have a hard time believing you can financially handle a $700,000 mortgage.
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Have substantial income and a stable job: It’s not a hard and fast rule, but many lenders prefer to keep your mortgage payment at or below 28% of your gross monthly income (before tax). For example, to afford $4,424 per month, you’ll need to show that you earn at least $15,800 monthly, or about $189,600 annually.
How much house can you actually afford? Use our free calculator for affordable home prices.
Your exact monthly payment depends on your down payment, interest rate, loan term, and other costs such as property taxes, homeowners insurance, and required fees. With a 30-year loan term and an interest rate of 6.5%, your monthly payment for principal and interest would be approximately $4,424.
Mortgage lenders have their own income requirements. However, you can use the 28/36 rule – if your mortgage payment remains below 28% of your gross income and total debt under 36% — to get an idea of how much you’ll need to earn. For example, with a monthly payment of $4,424, you would want to earn about $15,800 per month to keep your housing expenses under 28%, which translates to about $189,600 annually.
Depending on the type of mortgage loan you choose and if you are a first time home buyer, your minimum down payment requirements can vary from 0% to 5%. For a $700,000 mortgage, that’s $0 to $35,000. Any down payment of less than 20% on a conventional loan will require you to pay private mortgage insurance, which is added to your monthly mortgage payment.
Laura Grace Tarpley I edited this article.