How to Get a Mortgage Greater than a Million Dollars

As the cost of living has increased over the years, the “million-dollar house” that once sounded out of reach has become much more accessible. In fact, in some areas, such as beachfront properties and many of the most populous cities in California, a million is the base amount to get a fairly nice home. But it’s still not quite so easy to get a mortgage once you top the million-dollar mark.

Before you start shopping lenders, it’s important first to step back and make sure you can afford the million-dollar mortgage. Interest on your mortgage will be at least $30,000 a year ($37,186.10 at 3.75-percent interest, for example) once you hit the million-dollar price point, and that doesn’t include what you’ll pay in property taxes and homeowner’s insurance. Even if you had a million dollars cash in the bank, you’d be looking at paying more money for taxes and insurance each month than others pay for their entire mortgage.

To take out a loan for $1 million, experts recommend an annual household income that exceeds three times the interest. In this case, that would mean you’d at least need an annual salary of $90,000. That’s doable for many households, but you’re also limited by the fact that many lenders will only give you a loan for three to four times your income. So you would need an annual household income of at least $250,000. Before you seek a mortgage and put an offer on a house, though, you’ll want to run a calculator to find out what your $1 million mortgage monthly payment will be.

One way to get around lenders’ income restrictions is to have a substantial down payment. To avoid paying private mortgage insurance on your loan, you’ll at least need to put down 20 percent, which means you’ll need $200,000 if you borrow only $1 million. PMI is 0.5 percent to 1 percent of the total loan amount each year, which means a hefty payment each year. On top of that, if you don’t have the annual income to cover three-to-four times the loan you’re requesting, you’ll likely be denied, so you’ll need the down payment to make up for that.

If your home is $1 million and you have $200,000 to put down, that means you’ll be borrowing $800,000, so you technically don't need a mortgage on a million-dollar home if you can cut some of that cost with your down payment. As your dream home cost pushes up over that threshold, though, you’ll need more money up front for a higher loan.

Mortgages over certain limits – currently $453,100 in most states – require something called a “jumbo loan.” This category of loans doesn’t fall within the guidelines of Freddie Mac and Fannie Mae, which makes them nonconforming loans. There will be a maximum you can borrow on a jumbo loan, but it varies from lender-to-lender. You can also choose from either a fixed or adjustable-rate jumbo mortgage.

When you’re shopping around for a $1 million mortgage with monthly payment estimates, it’s important to realize that jumbo loans are riskier for lenders than those that are backed by Freddie Mac or Fannie Mae. This means you should expect to be able to demonstrate that you’re good for repayments, including having a stellar credit score and a solid history of paying your loans on time. If you do check all these boxes, a lender will likely be happy to find you, since they can make more money over the life of a jumbo loan than on a loan that is only a fraction of that price.

Getting a mortgage on a million-dollar home will be far less challenging if you prepare. Your FICO score will have to be higher than it would have been if you were purchasing a home in, say, the $300,000 range. Where you may be able to go as low as 620 to get a conventional loan, a jumbo loan will probably require you to be around 740. Occasionally a lender may go as low as 660, but that isn’t common.

One big difference if you’re looking for a jumbo loan is that you may have to show that you have enough money in reserves to cover a $1- million-mortgage monthly payment if something should happen. Generally, lenders will look for at least six months of assets, either in the form of savings or liquid investments. All of this is in addition to the 10-to-20 percent down payment you’ll be expected to have with most lenders.

If you’re looking for a jumbo loan, you’ll need to search specifically for lenders that offer them. You’ll find the search isn’t too hard, though. Lenders of all sizes offer jumbo loans, from corporate banks like Bank of America and SunTrust to small community banks and credit unions. Check with local banks to see if they have a special program in place for those in your profession. Some banks offer physician loans, for instance, which are specific to doctors and dentists.

If you’re a veteran looking for a mortgage on a million-dollar home, your first stop should be the Veterans Administration. Jumbo Loans are available to veterans and military buyers with the VA backing that gives lenders confidence. The VA guarantees 25 percent of the money lenders loan to veterans, but that backing stops at $453,100. You will need to pay a down payment to cover the required portion of the remaining amount. The process of qualifying for and getting a VA-backed jumbo loan will be the same as if it weren’t backed by the VA.

One benefit many homeowners get from a mortgage is that they can tax deduct the interest. But the changes in laws under the Tax Cuts and Jobs Act have complicated this a little. TCJA puts a cap on the amount of interest you can tax deduct and, while it doesn’t affect most homeowners, those who have jumbo loans will likely be affected by it. At tax time, you can claim the interest you pay on a primary home of up to $750,000 in value if you’re married filing jointly. If you’re married filing separately, that amount is only $375,000. So if you’re paying interest on a $1 million house and you want to claim that interest on your taxes, you’ll only be able to claim part of it. If tax deductibility is part of the decision of investing in a larger home, this is worth keeping in mind.

Another way the tax changes could affect you is with the state and the local tax deductions. If you itemize deductions, you can claim your property tax on your federal taxes, along with other state and local taxes. If you own a $1 million dollar house, that’s a significant amount. But the new tax laws limit the amount you can deduct to $10,000 which, once again, is likely to affect those who own higher-dollar property more than the average taxpayer. If you’re single or married filing separately, that limit drops to $5,000. The fact that the standard deduction has increased to $12,000 may not help high-dollar earners as much as it will others.