A $700,000 mortgage loan may sound high. But if you’re in hot housing markets like California, Hawaii, or the Washington, D.C., areas, it can be closer to the norm — especially if you want to buy a larger house. So, the question is: Will monthly payments on a $700,000 mortgage fit your budget?
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Even before you make your first monthly payment, there are high costs that come with a $700,000 mortgage. The following are one-time expenses that you’ll incur when purchasing the home.
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Down payment: 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% down, respectively, which would be $21,000 to $24,500 for 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 that you pay on closing day, in addition to your down payment. They could include the home appraisal, underwriting, title search, recording 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 “cash to close,” or the total amount you’ll pay on closing day.
A mortgage payment is driven largely by the loan principal, interest rate, and term length. Here’s what a $700,000 monthly mortgage payment could look like at varying rates.
Although a longer repayment term lowers your monthly payment, it also means you’ll pay significantly 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’ll pay $892,111 in total interest. But if you chose a 15-year term, you’d pay just $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’ll also pay some or all of the following costs:
Use the free Yahoo Finance mortgage calculator below to see how factors such as 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 pay monthly.
To see the details of your monthly payments and what you’ll 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 goes toward interest versus the principal.
This amortization schedule is for a $700,000 mortgage with a 6.5% interest rate over a 30-year term. The monthly payment toward the principal and interest is $4,424, and we have rounded each number to the nearest dollar.
Larger mortgages can be risky for lenders, so expect stricter borrower requirements that demonstrate your ability to repay. Here are a few strategies to help you qualify for a $700,000 home loan.
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Save a significant down payment: A larger down payment directly reduces how much you borrow and also shows lenders that you can build savings.
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Increase your credit score: Mortgage lenders look for a high credit score and clean payment history as evidence that you can borrow and repay obligations responsibly — plus, a higher score can lead to lower rates.
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Lower your debt-to-income (DTI) ratio: If your total debt payments (including your home loan) make up more than 36% of your income, lenders might have a hard time believing you can financially handle a $700,000 mortgage.
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Have substantial income and stable employment: It isn’t a hard and fast rule, but many lenders prefer to keep your mortgage payment at or below 28% of your gross (pre-tax) monthly income. 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 home affordability calculator.
The 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 a 6.5% interest rate, your monthly payment toward principal and interest would be around $4,424.
Mortgage lenders have their own income requirements. However, you can use the 28/36 rule — where your mortgage payment stays below 28% of your gross income and total debt below 36% — to get an idea of how much you’ll need to earn. For example, with a $4,424 monthly payment, you’d want to earn around $15,800 per month to keep your housing expenses below 28%, which translates to about $189,600 annually.
Depending on the type of mortgage loan you choose and whether you’re a first-time home buyer, your minimum down payment requirement can range from 0% to 5%. For a $700,000 mortgage, that comes to $0 to $35,000. Anything less than 20% down on a conventional loan will require you to pay private mortgage insurance, which is added to the monthly mortgage payment.
Laura Grace Tarpley edited this article.
