Tips to save money for a house

A new year is a popular time to start thinking about what's to come in the year ahead. Even if you aren't much of a resolution-maker, having goals—health, career, financial—for the different areas of your life can help you stay focused and keep you working toward something that matters to you throughout the year. One common goal? Buying a house.

Many people aspire to be homeowners one day but aren't sure how to make it a reality. The home buying checklist is a long one, and coming up with the money for a down payment on a house—the initial deposit you make on your property—is no small effort. It's dependent on a landslide of factors—your income, debt, and responsibilities, mainly. Experts agree it's possible to save money for a house in a year. The trick is to take effective action that prevents you from skimping or cutting corners on your saving and to have a firm objective in mind. Here are savvy and accessible ideas for saving money for a down payment on a house in 12 months.

How to save for a house in 12 months

Figure out how much you need to save for a house.

Before you can map out a plan, you need to have a target in mind. Most of the time, a down payment on a house is a percentage of the total cost of the home, which will vary depending on the market in your zip code. Generally speaking, it's recommended to save 20 percent of the total cost of the house, according to Katherine Perry, CFP, a financial consultant at Fort Pitt Capital Group. If you want to go above and beyond, she suggests stowing away 30 percent of the value, so you can put 20 percent down and then have 10 percent left to cover extra or hidden fees such as closing costs.

If you're looking at a million-dollar home, 30 percent ($300,000) may seem far-fetched, and that's okay. That 20 or 30 percent goal is not a blanket figure, but it is the amount that will set you up for the most financial success. What you want to avoid is making a small down payment and then having to pay a ton of interest or mortgage insurance every month for the decades it will take to pay off the house.

This definitely takes some self-motivation, though: Robert E. Tait, a mortgage loan officer at Motto Mortgage Elite Services, says some programs require as little as 3.5 percent down. Regardless of how large or small your down payment is, before you sign on any dotted line, make sure to research and read all of the fine print to be sure you're not stuck with sky-high interest rates.

Know your specific figure—and track it.

Percentages are great and all, but how can you compute your specific savings goal for a down payment without knowing the home you'll buy? It's not an exact science, but personal finance author Stefanie O'Connell Rodriguez recommends researching home prices in your desired area. Once you have a sense of the cost of a home you're likely to buy, play around with an online mortgage calculator tool to estimate the monthly mortgage you can afford. "From there you can identify an appropriate price range for your house hunt, and you can calculate how much you'd need to save for a down payment," Rodriguez says.

If your research shows that you can expect to pay $200,000 for a home, you'll need $40,000 for a down payment if you're going by the 20 percent standard. That means you'll want to save $3,333 a month to reach your down payment goal within a year. That's a huge chunk of money for most people, so you may need to rethink how long it will take to reach your goal and how many sacrifices you may have to make to get there.

"Getting specific about how much you need to save for your down payment can help ground your goal of homeownership in tangible, financial terms," Rodriguez says.

Create an auto-deduction into an account separate from your savings.

One way to resist spending cash on frivolous items is to act like you never had the money in the first place. Perry suggests creating an auto-deduction from your bank account the day you get paid.

"The best part about doing this is that you won't even see the money in your account if it's taken out the same day you get paid, so you won't miss it," she says. But don't just move it into your typical savings that you use for everything. Instead, make a completely separate account that's only for your down payment. This can help focus your efforts, since you'll be able to see exactly how much you have saved for this particular goal.

Consider a money market account.

Jordan Sowhangar, a certified financial planner and wealth advisor at Girard, doesn't recommend putting your down payment savings into any risky investments. You'll want to access the cash in a few months, so you should be strategic about what type of short-term account will yield the most benefit. Her best recommendation is an online money market account or a short-term CD that allows withdrawals within three or six months.

"These same vehicles also often have 'new money' promotional rates associated with them that allow you to earn even more than they generally would be offering as an incentive to save your money with that particular institution," she says.

Why is this beneficial? Put simply, it means more cash in your pocket. "It's an easy way to gain some extra money for saving in a similar way that you would normally anyway," Sowhangar says. As with anything, make sure you understand all of the restrictions and rules with this account so you aren't unpleasantly surprised when it's time to pull out your funds.

Capitalize on windfalls.

You may not be familiar with this specific term, but you've probably had a windfall experience. Coined by the financial industry, Sowhangar says windfalls are the extras that are given or earned that aren't part of our monthly income. These include a holiday bonus at work, a large birthday check from grandparents, a larger-than-expected income tax refund check, and other instances in which you receive extra money.

Instead of thinking of windfalls as fun money that you can use for vacations or shopping splurges, think of them as the fast-track toward your down payment. Sowhangar says putting windfalls directly into savings is more successful and lucrative than smaller savings efforts, such as forgoing your morning Starbucks visit or refusing to dine out for a year, particularly if you have an ambitious savings deadline. "These are unexpected and therefore easier to part with in terms of not spending them," she says.

Here's the big caveat here: It's all or nothing. Sowhangar says saving just a portion of a windfall allows you to rationalize immediately spending the rest—and possibly even cutting into the amount you want to set aside. Keep your eyes on the prize—a down payment—and put every penny you can toward that.

Temporarily reduce retirement savings.

The keyword here is temporarily: Retirement savings shouldn't be compromised in the long-term. Jim Brown, a financial expert and founder of Your Best Mindset, says pressing pause on this fund may initially sound like an unconventional financial misstep, but it can give you the opportunity to gather down payment funds and then redirect monthly rental payments toward building equity in real estate. Basically, you're saving for your future either way.

The 2022 retirement account contribution limit is $6,000 for an IRA and $20,500 for 401(k) plans. "If you've been maxing out your retirement plan contributions to an IRA or 401(k) plan, you may be able to build a down payment within a year by simply allocating all or most of that cash flow to your short-term home purchase goal," Brown says.

Make sure you're mindful of any employer matching, since it could be in your best interest—no pun intended—to not forgo all retirement savings. If your company matches your 401(k) plan contribution up to 3 percent and you earn $100,000 a year, you can limit your contributions to $3,000 and still receive the match benefit. "The $16,000 difference—$19,000 contribution limit, $3,000 contribution to earn the employer match—could be directly applied toward the down payment for the purchase of your new home," Brown says.

Look for bleeders.

Grey's Anatomy, New Amsterdam, or House fans know exactly what a bleeder is: something that drains the life out of you, stat. In terms of finances, Tait says we all have bleeders that withdraw cash from our accounts that we often forget about. Most often, they are automatic subscription services such as Netflix, Spotify, your gym, and so on. You can easily go through your statements and see how many of these you have set up. Then, get critical with how much you actually need them.

Tait suggests asking yourself questions like "Am I really using this?" "Can I let go of this for a year?" or "Is there another way to save?" Because some of these companies allow for home set-ups, you can go in on the payment with a friend and split the cost. The point is to stop the bleeders before they prevent you from getting the keys to your home.

Share your goals with others.

Not only is there strength in numbers, but vocalizing your year-long plan to trusted family and friends will also ensure they keep you accountable, especially if you have a supportive network. These people will step up when you need them and come up with strategies to help, too. With their support, for your birthday and the holidays, you can express you'd like to be given cash for your dream house, rather than a gift. Or you might have a grandparent who is proud of your progress and decides to match what you save. Whatever the case, Tait says it's better to be loud than quiet when you're going after an audacious goal.

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