Dreaming of owning a $1 million home? While it sounds luxurious, the reality of that real estate is that buying a property at this price point requires careful financial planning.

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“The ability to purchase a $1 million home depends on multiple elements, which include personal income levels, along with debt-to-income ratio and down payment requirements and interest rates and total financial responsibilities,” said Brett Iwanowicz, the founder and CEO at Brett Buys Roc Houses.

The following analysis includes the minimum annual income needed to maintain a $1 million home purchase. Here are some key factors to consider.

Cost of Owning a $1 Million Home: Down Payment

According to Iwanowicz, a common rule for homebuyers involves putting down 20% of the property value, which amounts to $200,000 for a $1 million home.

The majority of buyers need private mortgage insurance (PMI) to get approved for mortgages that require less than 20% down payment.

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Salary To Afford a $1 Million Home: Loan Amount

“An $800,000 loan amount will result after making a $200,000 down payment,” Iwanowicz explained. The mortgage payment amount each month depends on both the interest rate and the duration of the loan (30-year fixed or 15-year fixed).

How much income is needed to buy a million-dollar house varies, but it’s estimated that to afford one, you generally need an annual household salary of around $250,000 or more, assuming a 20% down payment and managing other debts. We’ll look more closely at how you get to that number.

Interest Rate and Monthly Mortgage Payment

Iwanowicz noted the interest rate stands at 6% per year in this example for a 30-year fixed mortgage.

“An $800,000 mortgage at 6% interest with a 30-year term results in a monthly principal and interest payment of about $4,800,” he added.

This also means that the calculated amount does not include payments for property taxes, together with homeowners’ insurance and homeowners’ association (HOA) fees.

Property Taxes and Insurance

“Annual property tax rates typically range between 1% to 2% of the home’s total value,” Iwanowicz said.

He explained that a $1 million home would require $10,000 to $20,000 annual property taxes, which equals $833 to $1,667 monthly payments.

And the cost of homeowners insurance varies between $100 and $300 per month based on location and coverage.