How Much House Can You Afford on a 200k Salary? (Breakdown)

Ever wondered how your income stacks up against the housing market? If you currently earn $200,000 per year, you may be surprised at the number of total square feet you could call home. We’ve done the work to give you some insight. 

At $200,000 per year, one can generally purchase a home in the $400,000 to $500,000 range, which is usually 2-3 times annual household income. Even at $200k per year, geography, credit score, and debt-to-income (DTI) ratio each play their role in whether the price tag on the home is above or falls below that spectrum.

With that said, it should come to no shock to anyone that there are vast differences in housing markets across the country also affect the quality and size of the home that any particular number might buy. 

We’ll illustrate the various factors through two scenarios in which both home buyers earn $200,000 per year. The first scenario is a married couple with a credit score of 750 and 39% DTI, purchasing a home in the suburbs of Milwaukee, Wisconsin, which is currently a super-hot housing market.

The second scenario is a single parent with a 675 credit score and DTI of 20%, purchasing a home in Denver, Colorado, another highly sought after location. 

Enjoy!

Is $200,000 per Year a Good Salary?

Before we can dive into the factors making up this analysis, let’s briefly consider a $200,000 annual salary. The national average salary hovers around $74,378, while most salaries exist between $44,500 and $97,000. Across the US the majority of earners gross less than $100,000. 

According to labor statistics, in 2020 only 30.7% of all households earned over $100,000. The national median salary for an individual worker in 2021’s second quarter was $51,480. So It’s safe to say that $200,000 boasts relatively strong buying power in today’s economy.

So if you are making anywhere close to this, give yourself a pat on the back. 

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How Do the US Real Estate Markets Compare?

To begin, it must be noted that the impact of COVID-19 on the housing market has been severe. If this post written two-and-one-half years ago, the following numbers would have been lower.

Experts agree that the middle-class in the United States has nearly been priced out of home ownership across the nation due to lower inventory and a strong seller’s market. 

That being said, one only has to look to the Big Apple to find the most expensive real estate in the nation pre or post pandemic. Right behind New York City are San Francisco, Honolulu, Boston, and Washington, D.C.

At the opposite end of the spectrum, the least expensive real estate markets fall in West Virginia, Mississippi, Arkansas, Oklahoma, and Kentucky (Go Wild Cats!). 

Both families in our scenarios would face a median residential real estate price of $745,000 in New York City, which includes single family homes or apartments, versus a median sales price of $122,342 in Mississippi, a shocking difference.

But what about Milwaukee and Denver? Price tags for metropolitan Milwaukee suburban homes hover around $326,771, while a similar home in Denver goes for $545,000. 

How Do My Credit Score and DTI Affect Me?

Your credit score can be anywhere from 300 to 850, and it is how lenders determine your probability of repaying the loan. Three main credit bureaus, Equifax, Trans Union, and Experian each provide credit scores, with Equifax’s FICO score being the favorite among lenders.

While credit scores can be tricky to understand, if you pay your bills on time and your total debt-to-income (DTI) ratio is around 30% or lower, you should have credit score in the 650-850 range. 

Your DTI basically just tells the lender how much income you have available to pay your mortgage payments. The Milwaukee and Denver families each earn $16,666 per month. With $6,500 in total monthly revolving debt, the Milwaukee family’s DTI is 39%. The Denver family has paid down their revolving debt to $3,333 per month, so their DTI would then be 20%, a more amenable figure. 

The Milwaukee family has an advantage over the Denver family in their overall credit score, but the Denver family sports a more appealing DTI. How is this possible? A credit score goes back years, and while the Milwaukee family may have always paid their debts on time, the Denver family, who owes less debt, may have made some late payments, been seriously delinquent on their liabilities, or defaulted on a loan. 

What Does Your Dream Home Look Like?

The type of home you seek is directly tied to your buying power. Whether a buyer wants a plot of land and a miniature castle, or a slice of an acre to build a modest abode, figure greatly into the total listing price.

Our main focus remains solely on geography here, so let’s examine the highs and lows of the metropolitan markets in Milwaukee and Denver. 

In Milwaukee County, adjacent to Lake Michigan, the neighborhood plays a role in the price tag. East Tosa brings in median home sales prices of $279,000. Meanwhile, the North Shore area, including Whitefish, commands home prices in the $970,000 range. 

Denver, with the Great Plains to the right and the Rocky Mountains front range to the left, is another hot market, with prices jumping 18.5% in the last year. In fact, metropolitan Denver is possibly one of the least affordable housing markets in the US as of March 2022, citing a lack of inventory post-COVID-19 as the major contributing factor. 

What Can These Families Buy?

Both of the families in this scenario are looking to purchase a home in a hot housing market and are looking at prices inflated over 15% from two years ago.

Generally, a single family should not purchase a home over three times the household income. Because of the inventory issue, lenders are now jumping to four or five times household income if the interest rates are appropriate.

Our Milwaukee family loves to socialize and wants to purchase a home in East Tosa that is 2,000 square feet. The median listing price per square foot in Milwaukee is $133 per square foot, and East Tosa is a more expensive neighborhood, so we know the price per square foot will be north of $133. Looking at a price tag of 300,000 on a 30-year fixed mortgage, with no money down and a 3.125% interest rate, the Milwaukee family is looking at a monthly mortgage payment of around $2,200.  

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Meanwhile in Denver on the Front Range, a square foot of real estate will cost anywhere from $242 per square foot to nearly $500 per square foot! Recalling that this family has a lower credit score, let’s modify their interest rate to 3.99% over a 30-year fixed with no money down. At a home cost of $742,000 at an average price per square foot, the Denver’s family’s monthly mortgage would be $4,317.

But again, the Denver family’s DTI was significantly lower than the Milwaukee family. Thus, a mortgage that is twice as much may be well within the Denver family’s budget at a $200,000 per year salary. 

A $200,000 Income May Buy A Great Home

Our analysis provides a clear picture of the buying power a household possesses at $200,000 per year. While our example swings between a huge margin, it illustrates that several factors must be considered.

Income alone is not representative of buying power. 

A person’s home state or city, credit score, DTI, and unique desires all play a role in how much house $200,000 can buy. While a $4,000 mortgage may be out of the question for one family, for another household with lower overall debt, it could be perfectly attainable. 

Thanks for reading folks!

Geek, out.