How to get a home mortgage as a freelancer?

Question from reader Van Lam:

I currently have about VND2 billion (US$82,026) and want to buy an apartment priced at nearly VND3 billion. This apartment project was completed three years ago but have not issued title deed yet. With the money we have, my spouse and I will need to get a VND700-800 million mortgage loan with the apartment as collateral. However, both of us are freelancers, earning about VND50 million per month, so we cannot prove our income.

Can I get a mortgage loan with my current conditions? I know that the current owner of the apartment has also taken a mortgage loan using the sales contract with the apartment’s developer as collateral. Thanks for your advice.

Advice from Tran Thi Mai Han, Personal Finance Planner, FIDT Investment Consulting and Asset Management Joint Stock Company:

Firstly, you need to determine that when buying an apartment project without a title deed, only banks listed as sponsors for the project can provide you with a loan.

At this point, the interest rate, loan conditions, and various fees, penalties, etc. will be decided by the banks in this list and you will not have many options.

For example, if you borrow VND800 million with a 15-year term at an interest rate of 10% per year, you will have to pay back an average of about VND11 million per month.

With a monthly income of around VND50 million, an average Vietnamese family can save 20-30% of their income, or VND10-15 million.

Thus, you can definitely repay your debt while maintaining your usual living expenses.

It is important to be aware of the “trap” of floating interest rates, which might be very attractive short-term preferential rates followed by high floating rates that can catch us off guard and create difficulties, especially during periods of economic and social instability.

Current regulations allow people to borrow from one bank to pay off another. However, a recent survey by VnExpress shows that getting a new bank loan to pay off old debts is not easy because of different standards on collateral assets, asset devaluation from market changes and other costs for the new loan.

Additionally, customers must pass the document review stage which is different for each bank. In the future, you should closely monitor the feasibility, conditions and costs of debt refinancing to plan for the optimal solution.

You should choose the longest term possible for your loans to reduce monthly financial pressure. It is also important to consider the ability to pay off the loan early without penalty fees so you can reduce interest if you can afford bigger monthly payments.

You should also establish an emergency fund that could cover at least six months of living expenses and bank payments.

This emergency fund is a safeguard that can help you overcome temporary difficulties like health issues or income disruptions.

Without an emergency fund, we tend to borrow to cover unexpected expenses, leading to a cycle of increasing debt.

Proving income as a freelancer

When seeking loans, especially for homebuying, it is essential to prove your income beyond just mortgaging assets to show your ability to repay debts.

The minimum income requirement varies with each bank’s policy. Typically, banks assess financial information like income and expenses.

They often require proof of income that is at least 150% of the maximum monthly payment to ensure that the borrowers can pay their debts and manage living expenses.

Proving financial stability can be more challenging for freelancers, independent business owners or those with variable incomes.

Nevertheless, banks employ various methods to verify a client’s income.

Income can be demonstrated through ownership of high-value assets like savings accounts, land use right certificates, property ownership, and assets linked to land or cars.

Income from business and manufacturing activities can be shown through financial and tax reports, inventory records, details of workshop systems, machinery, equipment and verifiable receivables.

Income from property renting can be proven through rental agreements.

Life insurance policies can also serve as proof of income.

Independent business owners can validate their income with a business registration certificate that has been valid for more than six months, along with invoices, data on inventory, cash books, bank statements and list of receivables.

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