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200k Income How Much House
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If you’re making $200,000 a year, you’re at the top in this country. This is nearly three times the median income of American workers, which is $70,784 according to the latest US Census data. But what does that income level mean for your home’s purchasing power? How much house can you buy with a $200,000 income?
Salary is only one factor in determining how much you can spend on a home purchase. Other parts of your overall financial picture also play a role. Your credit score and debt-to-income ratio, for example, can both affect the mortgage interest rate you’re offered, which can have a big impact on your monthly loan payment. Here are some factors that affect how much home you can afford.
A common rule of thumb in personal finance, the 28/36 formula refers to the ratio between your gross income and your total debt obligations. Ideally, your monthly housing costs should not exceed 28 percent of your gross income, while your total debt payments should not exceed 36 percent of your income.
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“The debt part of the equation includes things like car payments, student loans, credit cards, medical debt and monthly payments for daycare,” says Jack Kamer, vice president of mortgage lending for OriginPoint. “Not included are utilities, cable and phone bills.”
If you’re earning $200,000 a year, your monthly gross income could be around $16,666. Applying the 28/36 rule, your monthly mortgage payment should be no more than $4,666, which is 28 percent of your total. Monthly payment. Meanwhile, your loan payments should not exceed 36 percent of $16,666, which is about $6,000.
According to a mortgage calculator, buying an $800,000 home with a 20 percent down payment and a 30-year fixed mortgage at 6.5 percent interest would result in monthly principal and interest payments of more than $4,000. That’s up to $4,666 a month for property taxes, homeowners insurance premiums and possible HOA fees. So by following this rule, you should be able to buy a house worth $800,000.
In the current housing market, following the 28/36 rule, including higher mortgage interest rates and higher monthly mortgage payments, can be challenging even for high-income earners. “While the 28/36 rule is an admirable goal, it may be unrealistic given home prices and inventory shortages,” Kammer says. In today’s market, “with a 20 percent down payment and a 30-year fixed mortgage, a family making $200,000 might be able to afford a home for about $735,000,” says Kammer.
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The 28/36 rule is a good starting point when assessing how much home you can afford, but many other variables come into play as well. Remember that location also makes a big difference – your money will go further in a small town than in a big city, for example. When determining your budget, consider the following:
The more money you bring down for a home purchase, the less money you need to borrow, which in turn lowers your monthly mortgage payments. A 20 percent down payment is often (but not always) what conventional lenders like to see, and it’s a good goal to aim for if you want to lower your monthly mortgage payments in today’s high-stakes environment.
But to be fair, not all home loans require such a high down payment. There are many mortgage options that allow as little as 3 percent, but some require no down payment at all. There are also many programs that offer down payment assistance, although with a salary of $200,000, you may not qualify for them. Still, home buyers who don’t put down 20 percent are forced to pay private mortgage insurance, which adds to the total of your monthly mortgage payments.
Your credit score is critical to the amount of mortgage you receive. The better your score, the more competitive interest rates and loan terms you may be offered. Most conventional loans require a minimum credit score of 620, although higher is always better.
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“Credit scores have a huge impact on interest rates,” says Kamer. Even a 0.5 percent difference in price margin can cause a $200 fee swing. This is common when comparing rates with a 760 credit score versus a 680 credit score.
Your debt-to-income ratio is another factor that lenders weigh carefully. You can calculate it by dividing the total of all your monthly debt payments by your gross monthly income. The percentage earned is your DTI, and it helps lenders determine not only how to treat your debt, but how much you can afford to borrow.
“Mortgage lenders adhere to different debt-to-income ratios, some of which exceed 55 percent,” Kammer says. However, our clients maintain a 20 to 45 percent debt-to-income range.
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