Getting ready to buy property for your investment portfolio can be one of the most exciting times of your life, but it’s likely that it will cause you some stress at some point! It’s a major commitment, and it requires significant financial planning. Here are five actionable ways you can get ahead of your finances before taking the big step of acquiring property for your investment portfolio.
Understand Your Budget
The guideline is that your month-to-month lodging expenses shouldn’t surpass 28% of your gross month-to-month pay, and all-out obligation installments shouldn’t surpass 36%.
These are unpleasant rules, and everybody’s circumstance is one of a kind, yet it’s a decent spot to begin.
Save Ahead Of Time
Most lenders require a down payment between 3-20% of the property’s price, and putting down a larger down payment can help to secure better mortgage terms. So, start saving as soon as possible. Identify areas where you can cut back on spending, and make regular contributions to a high-yield savings account to grow your down payment fund.
Improve Your Credit Score
Your credit score plays a crucial role in your ability to secure a mortgage and the interest rate you’ll be offered. To improve your score, make sure you’re making all payments on time, keep your credit card balances low, and avoid taking out new credit. If you notice any errors in your credit report, dispute them immediately. You need to ensure you have full control over your credit score before acquiring property for investment reasons.
Have Money Set Aside
An emergency fund is your financial safety net. It’s money that you can access quickly if you face an unexpected expense. While it might be tempting to put every spare penny towards your down payment, don’t neglect your emergency fund. Experts usually recommend keeping between three to six months’ worth of living expenses in an accessible account. It’s useful to do this in case anything happens with your investment property or any issues with tenants.
Getting pre-approved for an investment mortgage can give you a better understanding of how much you can afford. It can also make you more attractive to sellers, as it shows that you’re a serious buyer with secure financing. Remember, being pre-approved doesn’t mean you’re obligated to borrow from that lender, so don’t hesitate to shop around for the best mortgage deal.
Buying an investment property is a significant step, and it requires careful financial preparation. By understanding your budget, saving for a down payment, improving your credit score, maintaining an emergency fund, and getting pre-approved, you’ll put yourself in the strongest possible position to make your dream of being a landlord a reality. Remember, the journey to acquiring property is not a sprint; it’s a marathon. So take your time, and plan carefully, and you’ll cross the finish line with confidence and peace of mind.