# What Income Do I Need to Afford a \$200K Mortgage?

March 28, 2024 - 11 min read

## Expect to need at least \$70K of income

A yearly income of about \$70,000 is generally needed for approval on a 200K mortgage. Remember, though, that this is just a rough estimation, and it hinges on certain assumptions about the buyer’s financial circumstances.

The income you’ll need depends on several factors, including your credit score, debt-to-income ratio, and down payment amount, to name a few. Here’s how to determine whether your income level is enough for a \$200K home loan (or possibly more).

## Income needed for a 200K mortgage: Examples

We’ve done the math to determine the income needed for a 200K mortgage. We also throught I’d be helpful to demonstrate the home buying budget you can maintain for varying down payments, considering a \$200,000 mortgage.

These are only examples and your own financial situation will be different. But you can use the numbers as a general benchmark when evaluating real estate prices.

Note that these scenarios assume a 6.75% interest rate for a 30-year fixed-rate mortgage. We also follow the 28/36 rule, which suggests to keep your housing expenditure under 28 percent of your income, while ensuring your total debt payments, which include housing costs, remain at or below 36 percent of your income.

### \$250K purchase price with 20% down

To illustrate how certain elements can influence your income criteria, let’s examine the situation of a 30-year fixed mortgage for a home valued at \$250,000.

Assuming a 20% down payment of \$50,000, you’d be left with a mortgage of \$200,000. At an mortgage interest rate of 6.75%, your monthly payment including taxes and fees would be around \$1,630. According to the 28/36 rule, your mortgage payment should not exceed 28% of your gross monthly income. Hence, assuming no other debt, you’d need a monthly income before taxes and deductions of at least \$5,821, or an annual gross income of at least \$70,000 to be eligible for the mortgage.

### \$222K purchase price with 10% down

If you’re not able to put down 20%, you might still qualify for a home but you’ll need to cap the purchase price at about \$222,222 and while generating the same income.

Assuming a 10% down payment of \$22,222, you’d again be left with a mortgage of \$200,000. As we’ve previously stated, for this mortgage amount, you’d need a monthly income before taxes and deductions of at least \$5,821, or an annual gross income of at least \$70,000 to be eligible for the mortgage.

### \$206K purchase price with 3% down

What’s changed in this example? Let’s say, you’re only able to put down a small down payment of 3%, which brings your purchase power down to a home value of about \$206,185.

In order to keep your home loan at \$200,000, you’ll need to put down about \$6,185, which is 3% of the purchase price. At an interest rate of 6.75%, your mortgage payment would end up around \$1,630 per month. Again, just like in the examples above, you’d need to make least \$5,821 per month, or an annual gross income of at least \$70,000 to be eligible for this mortgage.

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 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:

• Credit history: The better your credit score, the more loan options you have. Plus, you could get a lower interest rate, which will help increase your home buying budget
• Debt-to-income ratio (DTI): By keeping your other debts low (like credit cards and car loans), you can free up your monthly budget and get approved for a larger mortgage loan
• Employment history: Lenders typically want to see a steady two-year employment history prior to getting a home loan
• 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
• Additional housing expense: Homeownership costs like property taxes, homeowners insurance, and HOA dues (if living in a condo or townhome with a homeowners association) 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 report 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. 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 mortgage payments are about \$1,573 (assuming a 6.75% interest rate). But if you can put 10% down, your loan amount drops to \$225,000. Your monthly mortgage payments are over a \$100 cheaper. This can make it easier to qualify for the loan payment on your mortgage.

Additionally, those who are financing a home purchase with a conventional loan will pay private mortgage insurance (PMI) when they put less than 20% down. You can get rid of your PMI when there is at least 20% equity in the home. However, for the first several years, you’ll pay these insurance premiums along with your mortgage payment. So again, home buyers with larger down payments can pay less per month on a \$200,000 house.

### Debt-to-income ratio (DTI)

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

Mortgage lenders use your DTI ratio as a benchmark for affordability. The higher your existing debts are, the less monthly income you have to spare. That will affect how large of a mortgage payment you can afford.

• In the example above, a borrower with no existing debts, might qualify for a \$200K mortgage loan with an annual income around \$70,000
• If that same borrower has a \$1,000 of debt payments (let’s say students loans or car payment), they will need to make an annual income of around \$88,000 to qualify for that same \$200K loan

Your DTI is made up of two parts: front-end ratio and back-end ratio. As a rule of thumb, back-end ratio is the more important of the two. And lenders prefer it to be no greater than 36% for most mortgage programs but some may go up to 43%. By paying down your total debt 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 loan program you choose affects 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, as an example that shows those differences.

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

• Conventional loans: %
• FHA loans: %
• VA loans: %

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 mortgage term, or if you opt for an adjustable-rate mortgage (ARM).

## Shop around for your mortgage

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 loan.

Federal regulator the Consumer Financial Protection Bureau has studied the potential savings. Its 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.

And yet, “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,” reports the CFPB.

The good news is, most lenders offer online preapprovals these days. So you can get quotes and compare them quickly and relatively easily. Remember that finding the lowest rate doesn’t just save you money; it could make all the difference in affording the home you want.

## How to find your maximum loan amount

You can 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 the purchase price
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.

We started with the question, “What’s the income needed 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.

• 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
• 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
• 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
• Look into down payment assistance programs. If you’re a first-time home buyer, you may be in line for home buying assistance in the form of grant money or no-interest loans that cover all or part of your down payment and closing costs. This guide has DPA programs in all 50 states
• Comparison shop for your mortgage rate: A lower rate means big savings or a better home
• Don't switch jobs unnecessarily: Lenders typically want to see a steady two-year employment history within the same role or field
• 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!

How much income is needed 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.

## FAQ

What income is needed to qualify for a \$200,000 mortgage?

Based on our calculators and today’s rates, we have determined a minimum income of \$70,000 in order to qualify for a \$200,000 mortgage, assuming no other debt. However, keep in mind that the income required to qualify for varies depending on several factors, including interest rates, loan terms, credit score, and debt-to-income ratio.

What is the maximum debt-to-income ratio to qualify for a \$200,000 mortgage?

Lenders generally prefer a debt-to-income ratio of around 36% or lower to qualify for a \$200,000 mortgage, however it’s common to see some accept DTI up to 43%. This ratio compares your monthly debts, including the mortgage payment, to your gross monthly income.

What documentation is required to prove income for a \$200,000 mortgage?

Lenders typically require recent pay stubs, W-2 forms, tax returns, and bank statements as proof of income when applying for a \$200,000 mortgage. Self-employed individuals may need to provide additional documentation, such as profit and loss statements or business tax returns.

Is a higher credit score required to qualify for a \$200,000 mortgage?

A higher credit score can help when applying for a \$200,000 mortgage, as it demonstrates good financial habits and reduces the lender’s risk. However, specific credit score requirements vary among lenders, and there are mortgage options available for borrowers with lower credit scores.

Will other monthly debts affect the income needed for a \$200,000 mortgage?

Yes, other monthly debts, such as credit card payments, car loans, and student loans, will impact the income needed to qualify for a \$200,000 mortgage. Lenders calculate your debt-to-income ratio by considering all recurring debt payments.

Can I include my spouse's income when calculating the income needed for a \$200,000 mortgage?

Yes, lenders often consider combined household income when evaluating mortgage applications. Including your spouse’s income can help meet the income requirements for a \$200,000 mortgage.

Can a cosigner's income be factored in for a \$200,000 mortgage?

If you have a cosigner on your mortgage application, their income can be considered to meet the income requirements for a \$200,000 mortgage. Cosigners provide additional assurance for lenders and can boost your chances of approval.

Authored By: Peter Warden
The Mortgage Reports Editor
Peter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.