How to Build a Practice Budget for Homeownership

For so many potential homeowners, the jump to homeownership feels like a major financial leap. Will your bank account survive those monthly payments? What about all those mysterious extra costs everyone keeps warning you about?

Think of a “practice budget” as your homeownership training wheels. You’ll experience what bigger payments feel like before actually signing the dotted line. Plus, you might build a strong savings cushion along the way.

Understanding Your Current Financial Picture

Financial experts like talking about the 50/30/20 rule: about 50% of your paycheck for needs, 30% for fun stuff, and 20% for your future self. How does a mortgage fit into that?

The Twin Cities Habitat for Humanity's Homeownership Program makes sure your mortgage doesn't eat up your whole budget. You want to aim to keep your monthly payment at or below 30% of what you bring home before taxes.

Remember the acronym PITI:

• Principal: The portion of your payment that builds equity and gradually pays off your loan.
• Interest: The cost of borrowing money from your lender (typically higher in the early years).
• Taxes: Property taxes that fund local services and schools (often collected monthly in escrow).
• Insurance: Homeowner's insurance that protects both you and your lender from potential damages.

Creating Your Practice Mortgage Budget

Ready to take homeownership for a test drive? Here's your roadmap:

1. Research real homes in your price range: Browse our property listings to find realistic prices in neighborhoods you're considering.
2. Calculate potential mortgage payments: Use mortgage calculators to enter your expected down payment, current interest rates, and loan terms to see monthly estimates.
3. Find actual property tax and insurance costs: Check your county's tax assessor website for property records or contact local insurance agents for quotes based on similar homes.
4. Calculate the difference: Subtract your current rent from your estimated total monthly housing costs (mortgage + taxes + insurance).
5. Set up automatic savings transfers: Create a recurring transfer with your bank that moves this difference to a dedicated "Future Home" savings account after each payday.

For example: if you're paying $1,200 for rent but looking at a $1,700 mortgage payment, start saving that extra $500 each month.

The Real Costs of Homeownership

In Minnesota, we have special homeowner challenges. Picture-perfect snowy winters mean paying someone to plow your driveway (or investing in a snowblower and some serious gloves) or high heating bill in an older home in the middle of January. 

It’s a good idea to keep an emergency fund covering 3-6 months of expenses, with extra padding for seasonal surprises. If your potential home has older heating systems or appliances, plan to save extra money for possible repairs or replacements.

Other costs to pencil into your budget:

• Utility bills to cover the first winter
• Lawn care
• Fixing stuff that breaks 
• HOA fees in some neighborhoods 
• Making that empty house feel like YOUR home

Evaluating Your Practice Budget Success

When you're ready to move from practice to the real thing, you'll notice these positive signs:

• You've covered "practice payments" for at least six months 
• Your emergency fund is looking healthy
• Your budget feels comfortable, not restrictive

Ready to Take the Next Step?

We're your cheerleaders at Twin Cities Habitat for Humanity! Our mission is to help you find affordable paths to having a place to call your own. Our Homeownership Program helps with budget coaching, home-hunting support, and mortgage options.

If you're just starting to save or ready to start touring houses, we're here to help with your homebuying goals.

Download our free First-Time Homebuyer Guide to get even more budgeting tips and insights. We can't wait to hear about your homeownership dreams!