What salary do you need for a $400,000 house? – Practical guide

Quick answer and what this article will help you do

Short headline takeaway – how to get started in real estate

In many cases, the gross salary needed to comfortably buy a $400,000 home falls into a broad range once you include principal and interest, property taxes, homeowners insurance, PMI when applicable, and a lender’s debt-to-income checks. Exact numbers depend on live inputs like the mortgage interest rate you qualify for, your down payment, and local tax and insurance costs.

Key variables that change the result include interest rate, down payment amount, property taxes, homeowners insurance, and the lender’s DTI limits. These items are the same levers lenders use when turning a price into a qualifying income number. For practical calculations you can follow a repeatable worksheet below and verify live inputs with a lender or mortgage calculator.

This article provides a step-by-step calculation framework, decision factors to prioritize, three example scenarios, and a short preapproval checklist you can use when you talk to a lender. Use it as a starting point and verify numbers with live rate quotes and local tax information.

NerdWallet example

How lenders turn a $400,000 price into a required gross income

How monthly housing costs are defined (principal, interest, taxes, insurance, PMI)

Lenders start with a monthly housing cost that usually includes principal and interest on the mortgage, property taxes, homeowners insurance, and private mortgage insurance if your down payment is under 20 percent. The principal and interest portion depends mainly on the loan amount, the interest rate, and the loan term; those three items determine the monthly mortgage payment using the mortgage payment formula or a mortgage calculator.

When lenders compute qualifying income they add estimated monthly property tax and insurance costs to the principal-and-interest payment to form the total housing expense that goes into the debt-to-income calculation. This combined housing cost is what usually drives the salary requirement rather than the purchase price alone.

How debt-to-income (DTI) ratios control affordability

Underwriting uses debt-to-income ratios to decide whether your gross income supports your debts and housing payments. Many conventional guidelines treat a 43 percent total DTI as a common upper limit for typical qualifying scenarios, though lenders and programs can have different overlays and allowances depending on credit profile and reserves. For core DTI concepts see the Consumer Financial Protection Bureau guidance.

CFPB guidance

Common lender thresholds and overlays

Lenders also check your credit, reserves, employment history, and any additional monthly obligations when deciding how much of your gross income can be used for mortgage payments. Some programs allow higher DTI levels if compensating factors exist, while stricter overlays reduce the available DTI, which raises the gross salary you need to qualify.

Fannie Mae’s underwriting rules explain how eligible income and other items are verified and factored into the approval decision, and they are a useful reference for understanding typical lender practices.

Fannie Mae underwriting guide

A step-by-step salary calculation you can follow (worksheet)

Step 1: Choose a down payment and find the loan amount

HUD FHA limits

Step 2: Estimate interest rate and compute monthly principal and interest

The next step is to choose an interest rate and term and compute the monthly principal-and-interest payment. You can use the mortgage payment formula, or a mortgage calculator, to turn a loan amount, a rate, and a term into a monthly P&I figure. Small changes in rate or term can noticeably change the monthly payment, so it is important to use a realistic rate based on your credit and market conditions. For an example of monthly mortgage payment guidance see Chase’s calculator and explanation.

For a practical approach, pick a term (commonly 30 years for fixed-rate loans) and an estimated rate, run the loan amount through a calculator, and record the monthly P&I payment you get. Lenders rely on these same calculations when they underwrite an application.

Fannie Mae underwriting guide

Step 3: Add taxes, insurance, and PMI to get monthly housing cost

Add monthly estimates for property taxes and homeowners insurance to the principal-and-interest number. A conservative planning rule of thumb is to use roughly 1 percent of the home value annually for property taxes and 0.25 to 0.5 percent for insurance, though local rates can differ and you should verify local numbers for a precise estimate.

If your down payment is below about 20 percent, include an allowance for private mortgage insurance until you reach 20 percent equity. PMI costs depend on loan-to-value, credit score, and other factors, so treat PMI as an additional monthly cost you must budget for until it is removed.

Bankrate homeowners insurance guide

Step 4: Convert monthly housing cost to gross income using DTI

Once you have a full monthly housing cost, convert that to a required gross monthly income using a DTI rule. As a working example, using a total DTI limit of 43 percent means your total monthly debts plus housing costs should not exceed 43 percent of gross monthly income. Rearranging that gives a simple gross income target: gross income = total monthly debts and housing cost divided by 0.43.

When you use this step, include your recurring debts such as car payments, student loans, minimum credit card payments, and any HOA fees the property has. Those debts reduce the portion of your income available to cover the housing cost and therefore raise the gross income you need to qualify.

Use a lender quote or an online mortgage calculator for the P&I step, and keep the tax and insurance estimates conservative until you have exact local numbers. This helps avoid underestimating the salary you need to qualify.

NerdWallet example

Decision factors that move the needed salary: down payment, rates, taxes, and insurance

How down payment lowers monthly payments and can eliminate PMI

The single most direct way to reduce the loan amount and monthly payment is to increase the down payment. Using the common illustrative values, 5 percent down results in a loan near $380,000, 10 percent near $360,000, and 20 percent near $320,000 for a $400,000 purchase; the 20 percent case also generally removes PMI, which lowers monthly cost further.

Saving more for a larger down payment can cut both the principal-and-interest payment and the need for PMI, which can materially lower the gross salary needed to qualify under the same DTI limit.

HUD FHA limits

Interest rate sensitivity and term choices

Interest rate moves are often the next most powerful lever. A small change in rate can shift the monthly P&I by hundreds of dollars on a large loan, which translates into a meaningful change in the gross income required to meet a DTI threshold. Shopping rates and improving credit before application can help reduce the rate you receive and therefore the salary you need.

Choosing a shorter term lowers interest paid over the loan but raises the monthly payment, which increases the gross income needed. For most buyers a 30-year fixed loan produces a lower monthly payment and therefore a lower income requirement than a 15-year option, all else equal.

Fannie Mae underwriting guide

Local property tax and insurance differences and how to estimate them

Property taxes and homeowners insurance vary by location and can change a planning outcome. A conservative rule is to budget roughly 1 percent of home value per year for taxes and 0.25 to 0.5 percent for insurance, but local tax rates or high-value coastal insurance markets can push the insurance number higher and so should be verified early in the process.

Because these costs are part of the monthly housing figure lenders use, underestimating them can lead to an optimistic salary estimate that does not hold up at preapproval. Use local tax assessor data and an insurance quote to refine estimates when possible.

Bankrate homeowners insurance guide

Common mistakes and lender overlays to watch for

Counting pre-tax versus after-tax income and self-employment quirks

A common error is mixing after-tax cashflow with gross income used for underwriting. Lenders use gross, pre-tax income for qualifying, and self-employed borrowers often need to document income differently, which can change the income figure a lender will accept for qualification.

For self-employed applicants, lenders may rely on tax-return averages, adjustments, or specific documentation, and that process can reduce the qualifying income compared with a simple paycheck calculation. Ask your lender how they calculate qualifying income for your situation before relying on a simple worksheet.

CFPB guidance

Another mistake is assuming the lowest advertised rate applies to every borrower. Advertised rates are often for well-qualified applicants; your rate depends on credit score, loan-to-value, and other factors. Lender overlays and credit-score based pricing can increase your rate and therefore your salary requirement.

Also remember lenders may include HOA fees, condominium assessments, or other recurring housing expenses in the monthly housing cost, so check whether the property has fees that will be added into the DTI calculation.

Fannie Mae underwriting guide

Example scenarios: sample salary ranges and how to interpret them

Scenario A: 5% down (higher monthly payment)

Assumptions: $400,000 purchase, 5 percent down leading to an approximate loan of $380,000, a 30-year fixed term, an estimated market rate based on your credit, 1 percent annual property tax estimate, 0.35 percent annual insurance estimate, and PMI included until 20 percent equity is reached. These assumptions produce a higher monthly housing cost than larger down payment options and therefore require a higher gross salary to meet a DTI rule.

Because the loan amount and PMI push monthly housing cost up, the planning salary range for this scenario tends toward the lower to mid triple digits in thousands for some markets; exact numbers depend on the live rate and local taxes. Use the worksheet steps above and a 43 percent DTI rule as a starting point for a gross income estimate in this case.

NerdWallet example

Scenario B: 10% down (moderate payment)

Assumptions: $400,000 purchase, 10 percent down for an approximate $360,000 loan, 30-year fixed, same tax and insurance planning rules, and PMI reduced compared with the 5 percent case but still present. This middle scenario lowers the loan size and monthly payment relative to 5 percent down and therefore lowers the gross salary needed to meet a DTI limit.

For planning the salary range under this scenario you will often see a mid-range number compared with the 5 percent and 20 percent cases; the exact target depends on rate and local costs. Running the worksheet with your specific numbers gives the most useful estimate.

Bankrate homeowners insurance guide

Scenario C: 20% down (no PMI, lower payment)

Assumptions: $400,000 purchase, 20 percent down for an approximate $320,000 loan, 30-year fixed, property tax at 1 percent, insurance at 0.35 percent, and no PMI. Because the loan amount is lower and PMI is not required, this scenario typically results in the lowest monthly housing cost and therefore the lowest gross salary needed to qualify under the same DTI threshold.

Buyers seeking to minimize the gross income required to qualify often focus on saving more for a larger down payment or improving the credit profile to get a better rate. Verify the local tax and insurance numbers and get live rate quotes to turn these illustrative scenarios into precise salary targets for your situation.

NerdWallet example

Practical checklist and questions to ask when you get preapproved

Documents and information to gather

Bring or prepare pay stubs, W-2s, recent tax returns if self-employed, bank statements showing assets for the down payment, and documentation of recurring debts. Having these documents ready speeds preapproval and ensures the lender can calculate qualifying income accurately.

Also have a list of property-specific items you need checked: local property tax estimates, HOA or condo fees, and any special assessments that will affect monthly housing cost.

Key questions to ask your lender

Ask the lender which DTI rule they will apply and whether they use a 43 percent total DTI guideline or a different threshold. Ask which rate they assume for your preapproval, how PMI will be calculated if applicable, and whether HOA fees or other assessments will be included in the housing cost.

Confirm how the lender documents self-employed income if that applies to you and whether they have overlays that might change the standard program rules you read about in general guides.

Confirm conforming or FHA loan limits for the county you are buying in if program choice matters, and verify local property-tax and insurance estimates with the county assessor or an insurance quote so your preapproval reflects realistic monthly costs.

FHFA conforming limits

Wrap-up: next steps and where to verify the numbers

Summary of the calculation approach

Recap: choose a down payment to get a loan amount, estimate a realistic rate and compute principal-and-interest, add property taxes, insurance, and PMI if applicable, then convert the full monthly housing cost to a gross income target using a DTI rule such as 43 percent as a working example. These steps show the levers you can act on to lower the salary needed: larger down payment, better rate, or lower local taxes/insurance.

For live inputs, check FHFA and HUD for current loan limits and get lender quotes for rates and DTI rules. Use local assessor data for taxes and request an insurance quote early to avoid surprises at preapproval.

FHFA conforming limits

References

• https://www.nerdwallet.com/article/mortgages/income-needed-to-buy-a-house
• https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1793/
• https://www.fanniemae.com/singlefamily/origination-underwriting/eligibility
• https://www.hud.gov/program_offices/housing/comp/fhahistory
• https://www.bankrate.com/mortgages/homeowners-insurance-cost/
• https://www.fhfa.gov/PolicyProgramsResearch/Programs/Conforming-Loan-Limits
• https://financepolice.com/advertise/
• https://www.wellsfargo.com/mortgage/calculators/home-affordability-calculator/
• https://www.zillow.com/mortgage-calculator/
• https://www.chase.com/personal/mortgage/education/buying-a-home/mortgage-for-a-400k-home
• https://financepolice.com/category/personal-finance/
• https://financepolice.com/how-to-finance-a-barndominium/
• https://financepolice.com/homes-for-sale-under-100k/