If you’re on the market for a \$200,000 home, you might find that options in your price range are limited. The national median sale price for a home in July 2023 was more than double that price point at \$406,700. Before you make an offer, you’ll also need to make sure you can afford the monthly payments on a \$200,000 home. That depends on many factors, including your income, down payment amount and the prevailing mortgage interest rate.

Using Bankrate’s mortgage calculator, we can get a better picture of the income needed to afford a home at this price. If you come to the table with a 20 percent down payment, with a 30-year loan at 6.8 percent interest, your monthly principal and interest payments would equal about \$1,043. Adding in homeowners insurance and property taxes, which will vary by location, increases the total payment — let’s call it \$1,300. That amounts to \$15,600 annually on mortgage payments.

Housing-affordability guidelines suggest spending no more than about one-third of your income on housing. So, by tripling the \$15,600 annual total, you’ll find that you’d need to earn at least \$46,800 a year to afford the monthly payments on a \$200,000 home. This estimate however, does not include the 20 percent down payment you would need: On a \$200K home, that’s \$40,000 that needs to be paid in full, upfront. Nor does it include closing costs, which also vary by location but will likely amount to several thousand dollars more. And don’t forget to consider the ongoing costs of homeownership.

## Income to afford a \$200K house

When contemplating how much you can reasonably afford for a home, consider what’s known as the 28/36 rule. This rule basically states that it’s best to limit your housing costs to no more than 28 percent of your income, while spending no more than 36 percent on your debt overall (including housing).

Let’s apply the 28/36 rule to \$46,800 in annual income. This amount breaks down to \$3,900 per month. Setting aside 28 percent of that amount for housing would equate to \$1,092. Following the 28/36 rule, that is the maximum amount you would want to lay out for housing expenses in total — including principal and interest, property taxes, insurance premiums, HOA fees (if applicable) and ongoing maintenance.

Don’t forget the 36 percent part of the 28/36 rule. That means taking stock of all of your monthly other debts, including any credit card debt, car payments or student loans. If all of these expenses combined put you over the 36 percent mark, you may need to scale back or eliminate some of that debt before buying a home, to ensure you don’t get in over your head.

In addition, with a \$200,000 home budget, you’ll need to think carefully about locations that have homes are available at your price point. Some markets might be out of your reach, but that doesn’t mean there aren’t budget-friendly options out there. For example, check out markets like Buffalo, New York, where the median home price is around \$208,000 per July Redfin data, and Champaign, Illinois, where it’s \$200K on the dot. And remember, median means half the homes sold were above that amount, and the other half were below — so even if a particular market’s median price is above your budget, you still have a decent chance of finding a home you can afford there.

## What factors determine how much you can afford?

Many different factors play a role in how much house you can comfortably afford. These include your credit score, the type of mortgage you choose, the amount of money you have available for a down payment and more.

• Down payment: The more money you bring to the table in the form of a down payment, the smaller a loan you will need — and that, in turn, lowers your monthly mortgage expense. A sizable down payment has other benefits as well, says Jack Kammer, vice president of mortgage lending for OriginPoint. “Down payment can have a significant impact on the interest rate, as putting more money down means a less risky loan, translating to a lower interest rate,” he says. “Also, if you’re doing a conventional loan with 20 percent down, you would not have to pay the monthly mortgage insurance.”
• Credit score: Your credit score has a big impact on the interest rate you’ll be offered, and even the type of mortgage you’ll be eligible for. The higher your score, the better. “You may be able to do a conventional loan with a 620 credit score, but your interest rate may be far higher than doing an FHA loan that is geared toward first time home buyers and buyers with lower scores,” says Kammer.
• Debt-to-income and loan-to-value ratios: Debt-to-income ratio, or DTI, is a measure of your monthly debts versus your monthly income. This factor is a significant consideration for mortgage lenders. So is your loan-to-value ratio, or LTV, which measures the amount of your loan versus the overall value of the home you’re purchasing.
• Financial assistance: There are numerous assistance programs that can help cover down payment and closing costs to make homebuying more accessible, particularly if you’re a first-time buyer. These programs typically offer grants and low- or no-interest loans, and they exist at the federal, state and even local level — ask your real estate agent to help you figure out which ones you might be eligible for.

## Stay the course until you actually close

When you’re purchasing a home, whether you’re just getting started or in the final stages of a deal, it’s best to keep your finances in tip-top shape. This means not making any big purchases (like a new car) or running up the tab on your credit cards, both of which could impact your credit score. Remember, if your credit score declines, your lender still might decline your mortgage application.

It’s also important to have an agent you trust by your side to help you navigate the home search and negotiation process. A local real estate agent who knows the market you’re searching well can help you find a home you love within your \$200,000 budget.

## FAQs

• Assuming you have enough in savings to cover the down payment, closing costs and cost of regular upkeep, yes, you probably could afford a \$200K home on a \$50K annual salary. Using our example above, the monthly mortgage payment on a \$200K home, including taxes and insurance, would be about \$1,300. A \$50,000 annual salary amounts to about \$4,166 per month. Applying the 28/36 rule, 28 percent would be \$1,166, which gives you a bit of wiggle room before you hit the max of \$1,300. Of course, these figures would vary depending on your specific circumstances, location and mortgage rate.

• Assuming a 20 percent down payment and an interest rate of 6.8 percent, the monthly principal and interest payment on a \$200K home would be about \$1,043. For the total monthly payment you’d need to add the monthly costs of homeowners insurance, property taxes and HOA fees, which will vary depending on your location.