With an income of 30 million VND, should I borrow to buy a house?

According to experts, with the current interest rate environment, if you borrow 800 million, you will pay 9-10 million per month, suitable for people with an income of 30 million.

I am single and currently have a savings account of 1 billion VND. Monthly income from working and freelancing is about 25-28 million VND (can be raised to more than 30 million VND). Up to now, I have never had bad debt even though I have 5 credit cards and often buy goods on installments.

Instead of continuing to rent, I want to buy a 1-bedroom apartment at the end of the year. But according to my research, I need at least 1.8 billion to buy an apartment where I live (District 7 near Nha Be).

Should I borrow 800 million VND to buy my own house at this time? With my current financial situation, is it easy to get a loan and a good interest rate? Thank you, expert!

Nhat Tan

Real estate in the South of Ho Chi Minh City, February 2022. Photo: Quynh Tran — Real estate in the South of Ho Chi Minh City, February 2022. Photo: *Quynh Tran*

Consultant:

Before determining options and solutions for your home buying goal, you should prepare a comprehensive financial plan that includes financial protection options to ensure that this goal is achieved in the most optimal and least risky way.

First, you need to create a short-term emergency fund. This fund should be equal to 3-6 months of expenses. You can calculate the amount of unemployment insurance you can receive as part of this emergency fund. Next, you also need to consider the future financial needs of dependents such as your parents in the next few years, such as whether they will need you to support them.

Depending on the needs of your dependent(s), you should also consider purchasing life insurance to prepare for the worst-case scenario that could have a major impact on your finances, especially if you decide to take out a loan. You should also review whether you have any short-term financial goals, such as plans to get married in the near future.

You did not mention monthly expenses, which is important information that affects the achievement of your goals. You should monitor and assess your overall spending management issues: how much are you spending on essentials each month, how much are you spending on enjoyment, and most importantly, you need to know the monthly surplus after spending. Through that, you can manage your finances better to increase this surplus while still ensuring your inherent lifestyle as well as achieving your goal of buying a house.

With the brief information provided, in general, you can use leverage at this time to buy the desired apartment . You can consider prioritizing the option of borrowing money from relatives to buy a house (if possible). If you have to borrow from the bank, my advice for you is to approach large banks or foreign bank branches to get loans with lower interest rates than small and medium-sized banks.

Note that, because you have not separated your salary and freelance income, I cannot accurately assess your ability to borrow from the above banks because the bank will prioritize considering income from salary, not from other sources such as freelance income. Moreover, you also need to assess the fluctuations of these income sources to prevent risks.

Generally, the bank will lend you up to 80% of the value of the collateral and the monthly payment should not exceed 50% of your income from salary. In addition, the bank will count the total limit of the 5 credit cards as part of your loan, thus reducing the maximum amount you can borrow for this purpose. You should reconsider using the above 5 credit cards.

With the current good interest rate, you will have to pay about 9-10 million VND per month for a repayment period of 20-25 years, accounting for 30-35% of your income. This is still a feasible debt repayment rate for some young people. In principle, in my opinion, to minimize risks, the loan repayment amount should not exceed 75% of your monthly savings. Therefore, if your current monthly savings are not greater than 12 million VND, you should postpone the time to buy a house to continue accumulating surplus, in order to reduce the amount of debt.

In addition, I think you should try to borrow for the longest possible term and choose a fixed interest rate for the longest preferential period. For example, some foreign bank branches can currently lend you a fixed interest rate of 8.5-8.6% for 60 months. Choosing the longest fixed interest rate will help you proactively plan your interest and principal repayments rather than choosing a floating interest rate, especially in the current volatile interest rate environment.

Finally, you should prepare backup plans when borrowing. For example, if you cannot pay the interest and principal, can your relatives help you pay? If so, you should talk to them in advance.

A small note about using 5 credit cards, you should also consider carefully whether to use a credit card to buy goods in installments, because the selling price of the product may include the cost of unsecured loans (10-16%) in the selling price and whether a cash payment option can be discounted by the seller. After considering, if not necessary, you can reduce the number of credit cards you are using.

Hopefully the advice I provide can help you in some way in your decision making. However, you need to note that the numbers I provide are averages, hypothetical and may deviate from reality due to the characteristics of each person's income and risk appetite.

Nguyen An Huy
Personal Financial Planning Expert
FIDT Investment Consulting and Asset Management Company

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