Purchasing a home is a big decision with many factors to consider – location, potential renovations, total cost, and monthly payments. These choices will shape your lifestyle and financial future. That’s why it’s essential to be informed, ask the right questions, and work with a trusted advisor who can help you navigate the process.
As home prices rise across the country, including in many Midwest markets, more buyers are finding that their ideal home may require a mortgage of $500,000 or more. Understanding what goes into borrowing at this level is important, especially if you’re buying in areas where median sales prices have grown significantly in recent years.
With that in mind, here are high-level responses to common questions about pursuing a $500,000 mortgage.
What should you consider and watch out for when taking out a $500,000 loan?
One of the most important steps in pursuing a mortgage of this size is choosing the right lender. Real estate markets can move quickly, so getting pre-approved and working closely with an experienced loan originator is essential. Ask friends and family for recommendations, and research lender reputations online.
Take time to build a rapport with your loan originator so you feel comfortable being transparent about your goals, concerns, and questions. In early conversations, ask for a Loan Estimate to understand and compare closing costs and fees. Clear communication and trust will help ensure a smooth process from application to closing.
Are there different factors that determine eligibility for a loan of this size?
A $500,000 mortgage doesn’t necessarily have different qualification criteria from smaller loans, especially if it falls under conforming loan limits. For 2025, the conforming loan limit is $806,500, and the FHA limit is $524,225. This means many $500,000 loans are still considered conventional.
Your eligibility will be based on personal financial factors such as your credit score, income, savings, down payment amount, debt-to-income ratio, and the type of property you're purchasing (e.g., primary residence, second home, or investment property). These factors may also impact the interest rate you’re offered.
What should you know about fixed-rate vs. variable-rate mortgages?
Fixed-rate and adjustable-rate mortgages (ARMs) each have their own advantages depending on your financial strategy. A fixed-rate mortgage provides consistent monthly payments and interest rates over the life of the loan, offering predictability – especially valuable when rates are low.
An ARM, on the other hand, often starts with a lower rate and adjusts periodically based on market conditions. This can be a smart option in certain interest rate environments or if you don’t plan to stay in the home long term.
Your loan originator can help you weigh the pros and cons of each option and identify the right fit for your goals.
Final Thoughts
The best mortgage isn't always the one with the lowest interest rate – it's the one that aligns with your financial needs and long-term plans. Building a relationship with a trusted lender, understanding your options, and asking the right questions will help you feel confident as you move forward.
To learn more about the housing market and spring mortgage rates, check out this perspective from my colleague Jerry Koors, President of Merchants Mortgage.
