How Much Money You Should Make In A Year To Afford A $200,000 House

The cost of buying a house has changed a lot in the last few years. As recently as 2003, the median home price in the United States was less than $200,000. Now, it's more than double that price, according to the Federal Reserve Bank of St. Louis' report on data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau — and some U.S. cities' prices are climbing even faster than that. Adding interest rates, closing costs, and private mortgage insurance into the mix can further increase monthly payments. In short, buyers need a good lump sum of money to purchase a home.

According to Redfin, for buyers shopping in the $200,000 range, they would need to earn between $50,000 and $65,000 a year to not be overstretched. For some, this level of income might seem excessive. Even so, it follows the good rule of thumb that housing costs should not amount to more than 30% of an individual's gross income. By following this rule, you can avoid becoming house poor by landing in a position where your housing expenses cause you to struggle to make other necessary purchases.

Depending on the type of mortgage you go for, payments for a $200,000 home will look vastly different. With a traditional 30-year fixed mortgage at a 6.4% interest rate and a 20% down payment — $40,000 in this case —  a monthly payment comes out to $1,199, according to BankRate's mortgage calculator. Around $1,000 of that payment would go towards principal and interest, while $198 would be reserved for property taxes and homeowner's insurance, which may be bundled into an escrow account that is managed by the loan provider.

If you're a first-time home buyer, going with a Federal Housing Association loan would help reduce the amount needed for a down payment, but it has potential drawbacks: Using the same purchase price, term length, and interest rate, a home buyer would only need as little as $7,000 for a down payment. However, the monthly payment would be several hundred dollars higher, due to that lower down payment and other ongoing fees that are typical with FHA loans. With this type of loan, you could wind up paying tens of thousands more in interest compared to the $200,291 the traditional 30-year fixed loan is estimated to cost you. While both amounts can be manageable with the right planning, it's important to factor in other ownership costs like home maintenance, which has increased by well over 500% in the last 40 years according to the Federal Reserve Bank of St. Louis.