Depending on the purpose of investment or settlement, experts advise to consider carefully, buying a house in Ho Chi Minh City will be easier to get approved for a bank loan.
Hello expert, my family is currently working in Ho Chi Minh City but is thinking of buying a house in Can Tho to have a place to live in the future, because in Ho Chi Minh City it is very difficult to save enough money to buy according to our needs. The family's income is about 45-60 million VND per month, spending about 25 million including food, transportation, 5 million for rent and sending the child to school.
According to experts, should I buy a house for 2.5 billion VND and mortgage the red book to borrow 1.5 billion from the bank? Currently, I have no debt to pay, no other investments and have a surplus of 700 million VND in cash. Thank you!
Trong Nhan
Real estate in the East along Vo Nguyen Giap Street, Thu Duc City (HCMC), February 2024. Photo: Quynh Tran
Consultant:
I am glad that you have provided quite complete information about your financial situation and the considerations you are considering at the present stage. In fact, owning a house, especially the first house, is always a big plan and also a concern for many young families. Therefore, the financial resources to buy this house are also a problem that needs to be considered. However, the fact that your family has a cash balance of 700 million VND shows that you have prepared for your home buying plan. With the information you provided, I have some advice as follows.
Before considering sources of funding to buy a house, let's review the spending and reserve management section. According to the information, your family's current savings rate on income is 44-58%, which is considered a very good savings rate compared to many families we have consulted. However, I have not seen you mention financial protection measures for your family. In fact, in life, there are always risks and uncertainties, so your family needs life insurance contracts to protect finances and health, especially for the breadwinner.
In addition, you also need to maintain a reserve fund to deal with unexpected situations that may arise. According to experts, if your family has life insurance, the reserve fund can be maintained at 75 million VND (equivalent to 3 months of spending). In the opposite case, you need to maintain a reserve fund of 150 million VND (equivalent to 6 months of spending). The amount in the reserve fund can be taken from the family's current cash balance and deposited in a bank to both generate interest and be able to use it quickly when needed. However, the reserve fund also needs to be adjusted when your family has changes in monthly spending.
After setting up a reserve fund, we will now discuss whether to buy a house for 2.5 billion VND and mortgage the red book to borrow 1.5 billion or not . In the current context and expected by the end of the second quarter, according to FIDT experts, the real estate market has not yet been able to improve much, meaning that prices have not yet recovered and grown. Therefore, buying a house to live in at this time is also a suitable choice. You are in need of buying a house for 2.5 billion VND, of which you borrow 1.5 billion and the available cash balance is 700 million, the remaining 300 million, it is not clear whether you have any other sources of funding or not. With the option of buying a house, you need to pay attention to the following issues.
If you buy a house in Ho Chi Minh City, with a price of 2.5 billion VND, you should choose suburban areas such as Nha Be, Thu Duc, Hoc Mon or consider apartments with average prices. When buying a townhouse, in addition to the location, you need to pay attention to the legality and planning of the house so that borrowing and mortgaging at the bank is more convenient. If you buy an apartment, you need to see if the apartment you buy has a pink book or not. Some apartments currently do not have a pink book, leading to some inconvenience in the borrowing process, or you can only borrow from banks that they are associated with the investor. At the same time, when buying an apartment, you also need to pay attention to the characteristics of this segment, which usually only increases in value within the first 5-6 years, after 6 years the price grows slowly.
If you buy in Can Tho, you need to define your future goals more clearly, whether to move back to live or invest. If you invest at this time, the rate of return you receive when investing in real estate is almost very low compared to other investment channels such as investing in stocks or fund certificates. Therefore, I advise you not to buy real estate in Can Tho at this time, instead you can choose to invest in stocks (if you have an understanding of the financial market) or invest in fund certificates to optimize efficiency. Because currently, stocks and fund certificates have good growth potential.
If you buy for future residence, you need to note that some banks, especially banks with low interest rates, often do not accept provincial land mortgages when lending. Therefore, according to our recommendation, if you need to buy a house to live in, you should consider buying in Ho Chi Minh City to suit your work needs as well as make bank loans easily.
On this basis, if you borrow to buy a house in Ho Chi Minh City, banks usually lend a maximum of 70-80% of the house value (meaning the maximum amount you can borrow is between 1.75-2 billion VND), so you can completely borrow 1.5 billion VND. Currently, bank interest rates are quite low compared to recent years. Many banks in the market are offering loan packages with preferential fixed interest rates for 1 year, 3 years or 5 years. However, I will give the average interest rate that banks usually apply is 8-11% per year so that you have a more comprehensive perspective.
If the average interest rate is 8% per year, you borrow 1.5 billion VND, over a period of 25 years, the amount you have to pay each month is about 15 million, accounting for 45-75% of the current surplus (income minus expenses) of the family. If the interest rate is 11% per year, each month you have to pay an average of 19 million VND, accounting for 55-95% of the surplus. With the monthly debt repayment figures in the above interest rate options, I believe you can manage to pay off the debt. However, you need to consider that after maintaining the reserve fund, your remaining cash balance is only 550-625 million VND, which means if you buy a house for 2.5 billion VND, borrow 1.5 billion from the bank, you will still be short of 375-450 million VND.
I also want to discuss the case where you have no other source of funding, you need to borrow up to 1.9 billion to be able to own a house. My recommendation is that you should extend the loan period to 30 years. Then, if the interest rate is 8% per year, the amount you pay each month is about 18 million, accounting for 52-90% of the current surplus. In the case of an interest rate of 11% per year, the amount you pay each month is nearly 23 million VND. However, when you buy a house, you do not have to spend 5 million on rent, so I believe you can still manage to pay off this debt.
Finally, as mentioned, when you buy a house, your family's monthly expenses will decrease by 5 million VND, but the cost of paying off the bank loan will increase, so you have to adjust the reserve fund to suit your family's needs. At this time, you need to use all remaining surplus to set up a reserve fund until it reaches the levels I recommended above. When you have enough reserve fund, the remaining surplus after paying off the monthly bank loan, you should invest in other channels such as savings, stock investment, fund certificates to diversify the asset classes held.
Above is my advice on the options you can consider to buy a house for your family. Hope you choose the right option!
Dr. Nguyen Thi Nhu Quynh
Lecturer at Banking University of Ho Chi Minh City
Personal Financial Planning Expert at FIDT
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