Homes priced at $200,000 or below make up about a quarter of home sales, according to the real estate listings website Realtor.com. While that may seem like a lot, it’s actually down quite a lot from a decade ago, when half of all homes sold were at or under $200,000.
If you’re a savvy shopper looking for a starter home in a low-cost area, you might be able to snag a good deal on an affordable property. Here’s how to calculate the monthly payment on a $200,000 home, so you can determine whether you can afford this price point on your salary — or whether you should ask for a raise.
[Calculate: Use Our Free Mortgage Calculator to Estimate Your Monthly Payments.]
Determining How Much House You Can Afford
It can be challenging to set a homebuying budget amid today’s stubbornly high home prices and mortgage rates. Miscalculate, and you could end up “house poor” by spending too much of your earnings on your mortgage payment. Thankfully, there are two main rules for determining housing affordability:
1. Your housing payments shouldn’t exceed 28% of your monthly household income. First, estimate your total housing payments, including the principal and interest mortgage payment as well as property taxes, homeowners insurance, private mortgage insurance and homeowners association fees, if applicable. Then, divide that by your monthly gross income (before taxes and other deductions). If you have a co-borrower, you can include their salary in your household income.
2. You can afford a house that’s worth 2.5 times your salary. Under this rule, your annual household income would need to be $80,000 to afford a $200,000 home. The math is far simpler: Just multiply the gross annual income of your household by 2.5 to get your approximate maximum home price.
The rule that your payments shouldn’t exceed 28% of your gross monthly income is used by many mortgage lenders when issuing and underwriting a loan, while the rule that your home should be worth 2.5 times your annual salary is just conventional wisdom.
It’s worth noting that some loan programs allow higher numbers than 28%, and others focus only on your total expenses without singling out your mortgage costs. You may be able to afford more or less than the rules suggest, because affordability depends on your debts, living costs, income stability and other factors. And lenders often make exceptions for applicants with very high credit scores or other compensating factors.
Either way, it all comes out fairly evenly, and you won’t know the loan amount you can qualify for until you get preapproved by a mortgage lender.
Calculating the Mortgage Payment on a $200K House
Your monthly mortgage payment will depend on your interest rate, but it doesn’t end there. The size of your mortgage payment — and therefore, the amount you can borrow — will vary based on factors like location and loan type, too. Here are the main components of your mortgage payment:
Interest Rate
Getting a low mortgage rate involves some luck and good timing, since rates are moved by larger market conditions that are out of your control. However, you may be able to get a lower mortgage rate by improving your credit score and down payment before applying. Then, request loan quotes from multiple lenders.
Down Payment
You can put as little as 3% down for a conventional mortgage, and some types of loans require no down payment at all. But the more you put down, the lower your monthly payments will be. If your down payment is less than 20%, you will probably have to carry some form of mortgage insurance.
Property Taxes
Mortgage lenders typically require you to pay your property taxes in an impound or escrow account, which means they are added to your monthly payment. You may be able to forego this escrow requirement if you make a large down payment, but underwriters still include this cost in your qualifying ratios.
Effective property tax rates range from about 0.3% to 2.2%, depending on the state, according to the Tax Foundation, a nonpartisan think tank. You can search a property’s assessment and tax history on your county’s Assessor’s Office web page to estimate costs.
Homeowners Insurance
Mortgage lenders require you to carry homeowners insurance to protect their financial interest in your home. Although it will be cheaper to insure a $200,000 home than a more expensive dwelling, premiums vary widely depending on where the property is located. In many states, your credit score can also impact the cost of your home insurance.
It can be prohibitively expensive to insure a home located in a FEMA flood zone or in an area that’s prone to natural disasters — think Southern California’s wildfires or coastal Florida’s hurricanes. Higher monthly payments due to insurance require a higher income to qualify for a mortgage.
HOA Fees
Homeowners association fees aren’t usually included in your escrow payments, but mortgage underwriters count them when evaluating your application. HOA dues for single-family homes tend to be lower than those for townhomes or condominiums.
A homeownership guide from Fannie Mae says that HOA dues may cover some insurance needs, so you may be able to spend less for homeowners coverage. However, it also warns buyers that HOAs may require a special assessment payment for major one-time expenses, like structural repairs, and recommends that you “build HOA fees, which are likely to increase over time, into your budget so you can avoid potential late fees or disruption to your access to community amenities and common areas.”
Using Mortgage Payments to Estimate the Required Salary
The table below shows two scenarios for what the monthly mortgage payment might look like on a $200,000 home, assuming a 30-year fixed-rate loan at a 6.5% mortgage rate:
Two Scenarios for a $200k House: What Is the Monthly Payment?
| Low End | High End | |
| Down Payment | 20% ($40,000) | 5% ($10,000) |
| Property Tax Rate | 1% | 2% |
| Homeowners Insurance | $100 | $250 |
| Private Mortgage Insurance | $0 | $180 |
| HOA Fees | $0 | $300 |
| Monthly Payment | $1,278 | $2,264 |
On the low end, the payment on a $200,000 home would be $1,278, which requires a monthly gross income of $4,564 or an annual salary of $54,768. That’s below the national average salary of $66,622, per 2023 data from the Social Security Administration.
Still, homebuyers in certain situations will have much higher monthly payments and salary requirements. Someone who puts 5% down will probably have to pay for mortgage insurance, depending on the loan type.
When considering the high-cost scenario for property taxes, insurance and HOA fees, the monthly mortgage payment could be north of $2,264. That would require a nearly six-figure salary ($97,032) with a monthly household income of $8,086.
While that may seem unattainable, it’s possible to afford a $200,000 home on the typical American salary, depending on the loan type or property location. Plus, there may be first-time homebuyer programs that can help keep costs down and bring homeownership within reach.
[Read: Best Mortgage Lenders]
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The Salary You Need for a $200K House originally appeared on usnews.com
