How much income do I need for a $200K mortgage?

Peter Warden
Peter Warden
The Mortgage Reports Editor
December 8, 2021 - 7 min read

Income needed for a $200,000 mortgage

How much income do you need for a $200K mortgage? That’s a question many homebuyers ask. And the answer depends on several factors, like your credit score and down payment amount.

Here’s how to determine whether your income level is enough for a $200K home loan (or possibly more).

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Income for a $200,000 mortgage: Examples

We’ve done some calculations to show you the range of incomes that might get you approved for a $200,000 mortgage. Keep in mind, these are only examples and your own situation will be different. But you can use the numbers as a general benchmark.

Here are the lowest and highest annual incomes that qualify for a $200K loan using mainstream criteria for a 30-year, fixed-rate mortgage:

  • Salary: $37,500 per year. Mortgage amount: $200,000 — This example assumes you have no other debts or monthly obligations beyond your new housing costs, a 20% down payment, and a good credit score. With that down payment, your $200,000 mortgage would buy you a home worth $250,000
  • Salary: $94,000 per year. Mortgage amount: $200,000 — What’s changed? Your existing monthly debts are $1,500 and your down payment is only 3%. That 3% and your $202,000 mortgage will buy you a $209,000 home. We’re still assuming your credit score is good. So you may need an even bigger income if it isn’t

Note that these scenarios assume a 36% debt-to-income ratio. Many lenders will approve borrowers with a DTI as high as 43% — so if your salary is in the range below you might qualify for a mortgage significantly higher than $200K.

You can run your own scenario using our home affordability calculator. Though keep in mind, you’ll only know your exact budget after you talk to a lender and get your finances approved.

Income isn’t the only factor for mortgage qualifying

Of course, mortgage lenders take your income into account when deciding how much (if anything) they are prepared to lend you. But income is only one factor in a long list that lenders look at to approve your home loan amount.

Other important factors for mortgage qualifying include:

  1. Credit score — The better your credit score, the more loan options you have. And the more you’re likely to be able to borrow
  2. Debt-to-income ratio (DTI) — By keeping your other debts low (like credit cards and auto loans), you can free up your monthly budget and get approved for a larger mortgage loan
  3. Employment history — Lenders typically want to see a steady two-year employment history prior to getting a home loan
  4. Savings and assets — You don’t need a huge amount of savings to get a home loan these days. But if your income is on the lower end, having cash ‘reserves’ in your bank account could help you get a home loan more easily
  5. Additional housing costs — Homeownership costs like property taxes, homeowners insurance, and HOA dues (if living in a condo or townhome) will also affect your home buying power. The more expensive your total mortgage payment, the smaller your maximum loan amount

You don’t need to be perfect in all these areas to get a home loan. But improving one area of your finances (like your credit or down payment) can often help make up for a weaker area (like a lower income).

Down payment

The size of your down payment is an important consideration in your home buying budget.

The more money you put down, the smaller your loan amount will be. And that can help you qualify if your income is relatively low.

For instance, say you want to buy a $250,000 home. With a 3% down payment, your loan amount is $242,500 and your monthly principal and interest payments are about $1,100 (assuming a 3.5% interest rate).

But if you can put 10% down, your loan amount drops to $225,000. And your monthly payments are almost $100 cheaper. This can make it easier to qualify for the monthly payment on your home loan.

Debt-to-income ratio (DTI)

Your debt-to-income ratio is the percentage of your monthly gross (pre-tax) income that goes toward existing debt payments. Those include things like minimum credit card payments and installments on auto loans, student loans, and personal loans.

Mortgage lenders use your DTI as a benchmark for affordability.

The higher your existing debts are, the less spare income you have each month. And that will affect how large of a mortgage payment you can afford.

  • In the example above, a home buyer with $1,500 in monthly debts needs a $94,000 salary to qualify for a $200,000 mortgage
  • A borrower with no existing debts, on the other hand, might qualify for the same mortgage loan amount with an annual income below $40,000

By paying down existing debts before you buy a home — and avoiding taking on new debts — you can lower your DTI. This could substantially increase your home buying budget.

Loan type and interest rate

The type of mortgage you choose can affect the mortgage rate you’re offered — and therefore the sum you can borrow. The differences tend not to be huge, but every bit helps when you’re paying interest on a large sum over a long time.

Let’s take a single month, June 2021, as an example that shows those differences. We got our figures from the ICE Mortgage Technology Origination Insight Report.

Here were the average interest rates across three major loan types:

  • All loans: 3.22%
  • Conventional loans: 3.30%
  • FHA loans: 3.23%
  • VA loans: 2.92%

The differences can be even greater if you choose a shorter-term loan (usually, a 10-, 15- or 20-year mortgage) rather than a 30-year one, or if you opt for an adjustable-rate mortgage (ARM).

Shop around for your mortgage

Yes, you can get a better mortgage rate when you choose the right type of mortgage. But you could save at least as much — sometimes more — simply by comparison shopping for your mortgage.

Federal regulator the Consumer Financial Protection Bureau has studied the potential savings:

“Mortgage interest rates and loan terms can vary considerably across lenders. Despite this fact, many homebuyers do not comparison shop for their mortgages,” said the CFPB.

Research suggests that comparison shopping for a mortgage loan saves the average buyer about $300 per year and “many thousands” over the life of the loan.

“In recent studies, more than 30 percent of borrowers reported not comparison shopping for their mortgage, and more than 75 percent of borrowers reported applying for a mortgage with only one lender.

“Previous Bureau research suggests that failing to comparison shop for a mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.”

Thanks to the internet, comparison shopping doesn’t take all that long. You can begin with The Mortgage Reports’ “Find the Best Lender for You" service.

But also check with your bank or credit union and follow up on any recommendations you get from friends and family. Remember, the more quotes you receive from different lenders, the more likely you are to find your lowest possible rate.

How to find your maximum loan amount

Use our mortgage calculator to estimate how much you can borrow, just as we did earlier. But don’t miss the three tabs near the top of the page:

  1. By home price — You’ve seen a home you like and want to know if you can afford it
  2. By income — How much can you borrow given your income, DTI, and down payment?
  3. By monthly payment — You know how much you can afford to pay each month for your mortgage. So how much can you borrow?

Click the tab you want and simply change the default figures to your own. You’ll find it pretty straightforward but read the instructions below the calculator if you have any concerns.

Tips to maximize your home buying budget

We started with the question, “How much income do I need for a $200K mortgage?” And we have demonstrated that there’s no easy answer.

What we can do is give you some tips for maximizing your home buying budget on your current income.

  1. Pay down debts before you buy a house — Help your DTI by paying down credit cards and, where possible, prepaying installment loans so you reduce your monthly debts
  2. Improve your credit score — Get all your credit card balances below 30% of their respective credit limits. And keep making all your payments on time. Also, don’t open new credit accounts or close old ones before closing
  3. Save up for a bigger down payment — The higher your down payment, the less you need to borrow for the same home. Or you could buy a bigger home. And a high down payment generally means a lower mortgage rate
  4. Comparison shop for your mortgage rate — A lower rate means big savings or a better home
  5. Don't switch jobs unnecessarily — Lenders typically want to see a steady two-year employment history within the same role or field
  6. Build up your savings and assets — These make you a low-risk borrower and may earn you a bigger loan amount

Of course, it’s difficult for anyone to do all these things at once. But start where you can.

Even a small improvement in your credit score or DTI can make a big difference in your home buying budget. Remember, every little bit counts!

Affording a $200K mortgage: The bottom line

How much income do you need for a $200K mortgage? That’s at least partly up to you. The better your finances look (decent down payment, good credit score, low debts), the more house you’ll be able to afford on your income.

Want an exact number? Connect with a lender who can verify your eligibility and tell you just how much house you can afford.

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