If I get a mortgage, should I buy a house in Mekong Delta or Ho Chi Minh City?

Question from reader Trong Nhan:

Currently, my family is working in HCMC but we are considering buying a house in our hometown, the Mekong Delta city of Can Tho, for future residence, because in reality it is very difficult to save enough money to buy a house that fits our needs in HCMC.

Our family income is around VND45-60 million (US$1,834-2,445) per month, with monthly expenses of about VND25 million including food, transportation, rent of VND5 million, and our child's tuition.

Should I buy a house for VNDVND2.5 billion and mortgage the title deed to borrow VND1.5 billion from the bank?

I do not have any debts at the moment, nor do I have any other investments, and I have a savings of VND700 million. Thank you!

Advice from Nguyen Thi Nhu Quynh, lecturer at the Ho Chi Minh University of Banking and personal finance planner at FIDT Investment Consulting and Asset Management Joint Stock Company:

The fact that your family currently has a savings of VND700 VND indicates that you have been preparing for your home purchase.

Based on the information you provided, I have some advice as follows.

Before considering finances for the house, you should review your expenses and establish an emergency fund.

Your family is currently saving about 44-58% of your income, which is considered very high compared to many families that I have advised.

However, you did not mention any emergency plan for your family.

In reality, there are always risks and uncertainties in life, so your family needs life insurance contracts to protect your finances and health, especially for the breadwinner, and an emergency fund for unexpected situations.

According to experts, if your family already has life insurance, the emergency fund should be worth three months of expenses, or VND75 million in your case.

Otherwise, it should be equivalent to six months of expenses, or VND150 million for your family.

The fund can be put into a savings account to earn interest while being readily available when needed.

It also needs to be adjusted when there is a change in your family's monthly expenses.

After setting up the emergency fund, we will discuss whether you should buy a VND2.5 billion house and mortgage the title deed to borrow VND1.5 billion.

Considering the current market condition and FIDT’s forecast, the real estate market is not expected to improve much in the first half of this year, meaning prices may not increase.

Therefore, buying a house to live in at this time is also a suitable choice.

With a VND1.5 billion and a savings of VND700 million, you are still VND300 million short of VND2.5 billion, so it is unclear if you have any other funding sources.

If you buy a house in HCMC with a price of VND2.5 VND, you should choose suburban areas like Nha Be, Thu Duc and Hoc Mon districts, or consider mid-priced apartments.

When buying a townhouse, besides the location, you need to pay attention to its legal status to make the borrowing and mortgaging process at the bank easier.

If you buy an apartment, check if its title deed has been issued as some currently do not have title deed, which leads to possible inconveniences during the mortgaging process or cases where you may only be able to borrow from banks that have a partnership with the property developer.

Also, when you buy an apartment, you should note that this segment usually increases in value only within the first five to six years after handover.

If you buy a house in Can Tho, you need to decide whether you will live there or hold it as an investment.

At the moment, the return on real estate investment is quite low compared to other asset classes like stocks or fund certificates.

Therefore, I advise you not to buy real estate in Can Tho if it is for investment.

Instead, consider investing in stocks if you have an understanding of the financial market, or fund certificates for better efficiency.

Currently, these assets have good growth potential.

If you plan to live in Can Tho, note that some banks, especially those with low interest rates, often do not accept provincial land as collateral for loans.

Therefore, our recommendation is, if you need to buy a house to live in, consider buying one in HCMC as it is more convenient for your job and easier to get a mortgage.

If you borrow to buy a house in HCMC, banks typically lend up to 70-80% of the house's value, meaning you could borrow up to VND1.75-2 billion.

Currently, loan interest rates are quite low compared to previous years.

Many banks are offering loan packages with preferential interest rates per year for the first one year, three years, or five years.

The average loan interest is around of 8-11% per year.

If the average interest rate is 8% per year, a VND1.5 billion loan with a 25-year term means you would have to pay about VND15 million per month, or 45-75% of your family's current monthly surplus (income minus expenses).

If the interest rate is 11% per year, you would have to pay an average of VND19 million per month, or 55-95% of the surplus.

With the above monthly payment, I believe you can manage to repay the debt.

However, you need to consider that after establishing the emergency fund, your remaining savings would be VND550-625 million, meaning that if you buy a VND2.5 billion house with a VND1.5 billion loan, you would still lack VND375-450 million.

In the case where you do not have any other sources of money and need to borrow up to VND1.9 billion to buy the house, my recommendation is to extend the loan period to 30 years.

This translates to a monthly payment of VND18 million if the interest rate is 8%, or 55-95% of your current surplus.

If the interest rate is 11% per year, the monthly payment would be nearly VND23 million.

However, once you bought the house, you will not have to spend VND5 million on rent, so I believe you can still manage to repay this debt.

In this case, with the increased bank loan repayment, you must adjust the emergency fund to suit your family's needs.

At this point, you should use all your monthly surpluses to add to the emergency fund until it reaches the levels I recommended above.

Once the emergency fund is sufficient, the remaining surplus after monthly payments should be invested in other channels such as savings, stock investments, fund certificates to diversify your portfolio.

These are my recommendations for the options you can consider. I wish you to find the most suitable option!

*The question and answer were translated into English by AI.