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“Bank Loan Requirements and Application Process for Home Buyers”

"Buying your dream home is a significant financial decision, and for many, it's an intimidating process. Understanding the ins and outs of mortgage applications and the various requirements involved is crucial. This article aims to demystify the process by exploring the conditions and procedures of obtaining a bank loan for purchasing your home. We'll guide you through the journey, ensuring you're well-informed and prepared to take this exciting step towards achieving your dream."

Administrator

28 July, 2024

Many people strive their entire lives to buy a house, but financial or personal reasons often get in the way. Taking out a bank loan to purchase a home is not uncommon, but what are the conditions and procedures? Let’s find out together.

1Conditions for Installment Home Purchase Loan

To apply for a bank loan to buy a house in installments, you must meet the following requirements:

For the Borrower

Must be a Vietnamese citizen or have a spouse who is a foreigner, aged 22-70, and have full legal and civil act capacity.

Hold a household registration book/temporary residence book/temporary residence certificate as prescribed by the State.

Provide personal documents: identity card/identity card, marriage certificate if married, or a certificate of single status from the local authority if single.

Most importantly, the borrower must prove a stable income and the ability to repay the loan on time.

The prerequisite is that you must have Vietnamese citizenship

For the Borrower’s Income Level

Income from Basic Salary:

Employment contract (still valid) or work assignment decision.

Bank statements (original) of the salary account for the last 3-6 months or more, depending on the bank’s regulations.

The borrower’s income level must be supported by documents

Income Other Than Basic Salary:

For income from rentals (house, car, etc.), you must provide documents proving ownership, such as a rental contract or receipts for the last three periods, legal documents of the rented property, and photos of the property.

For business income: Business registration, financial statements, tax reports (last 3 years), income and expense records, bank statements, etc.

2 Procedures for Home Purchase Loan:

Step 1: Prepare the Necessary Documents

The required documents include:

Loan application form (provided by the bank)

Valid ID card/identity card

Permanent residence book/temporary residence book/temporary residence certificate/temporary residence confirmation

Marriage certificate

Certificate of ownership of the house to be purchased and the purchase contract (copy)

Proof of income: Employment contract, salary statements, or salary confirmation, payroll with the company’s seal.

If the income source is from business activities, the customer must provide a business registration certificate, financial statements, and business reports for the last 6 months.

Step 2: Appraisal and Asset Evaluation

Based on the customer’s information and loan application, the bank will conduct an appraisal process, including checking the customer’s credit history, making phone calls, appraising the place of residence and work/business, and evaluating the collateral, which is the house being purchased.

Once the application meets the loan requirements, the bank will approve the loan

Step 3: Make a Lending Decision and Disburse the Loan

If the application meets the loan requirements, the bank will send the customer a loan approval notice and proceed with the necessary procedures for disbursement.

Step 4: Monitor and Liquidate the Contract

After the purchase contract is notarized, the customer provides the contract to the bank, which then disburses the requested loan amount and transfers the funds to the seller’s account.

The process of obtaining a bank loan to buy a house usually takes about 2-3 days to a few weeks, depending on the customer’s application.

3 Methods of Home Purchase Loan:

Currently, banks offer various packages and flexible loan forms, allowing borrowers to take out a loan for up to 70-80% of the property’s value with a repayment period of up to 25 years, depending on the bank’s policies and promotions. Generally, there are two types of home purchase loans:

There are currently two types of loans: secured and unsecured

Secured Loan: This type of loan uses your most valuable asset as collateral, which can be the house you are buying or another property. The advantage is that you can borrow a larger amount and have a longer repayment period of up to 35 years.

Unsecured Loan: This option is more convenient as it does not require collateral and is based on the bank’s trust in the borrower. However, the repayment period is shorter, and the interest rate is higher.

4 Common Mistakes When Taking Out a Home Purchase Loan

Determining an Unsuitable Loan Amount

Although you can borrow up to 80% of the property’s value, it will put you under significant pressure due to the high-interest burden. Therefore, it is best to borrow around 30-40% of the property’s value, and allocate only 28% of your total income to repay the loan each month.

Choosing an Inappropriate Repayment Period

Similar to determining the loan amount, choosing a repayment period of about 25 years may reduce your financial burden, but it will create psychological pressure as you will be in debt for almost 25 years.

The loan amount, repayment period, and interest rate regulations are crucial factors to consider.

Not Understanding the Interest Rate Regulations

In addition to the above, it is essential to be aware of the interest rate regulations and any penalties for late payments or early full repayment of the loan. Also, note that you will receive a promotional interest rate for the first 1-2 years of the loan. Carefully consider all these factors before taking out a home purchase loan.

Reference: Interest rates of some banks (as of 5/2021)

The above information outlines the conditions and procedures for obtaining a bank loan to purchase a house. Hopefully, this will help those in need of a loan to navigate the process successfully.

Frequently asked questions

The requirements may vary slightly between banks, but generally, you will need to meet certain income and credit history standards. For income, you typically need to earn a minimum annual salary, and your debt-to-income ratio, including the potential mortgage, should not exceed 36%. A good credit history is also essential, with a recommended credit score of at least 620.

You will need to provide various documents to support your application, including proof of identity (such as a driver’s license or passport), recent pay stubs or tax returns to verify income, bank statements, and information about your assets and debts. If you are self-employed or have variable income, you may need to provide additional financial documentation.

The bank will assess your financial situation and consider factors such as your income, credit history, and existing debts. They will also evaluate the property you intend to purchase, including its appraised value and your planned down payment. Based on these factors, the bank will determine the loan amount you are eligible for, ensuring that your monthly payments remain manageable.

There are several types of home loans, including fixed-rate mortgages, adjustable-rate mortgages, FHA loans, VA loans, and jumbo loans. Fixed-rate mortgages have a set interest rate for the life of the loan, while adjustable-rate mortgages have a variable rate that can change periodically. FHA loans are insured by the Federal Housing Administration and offer flexible eligibility requirements, while VA loans are for qualified veterans and active military personnel. Jumbo loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac.

The down payment requirement can vary depending on the type of loan and the lender. Conventional loans typically require a down payment of at least 5%, although a 20% down payment is ideal to avoid private mortgage insurance (PMI). For FHA loans, a minimum down payment of 3.5% is generally required. VA loans may not require any down payment at all, making them a great option for eligible borrowers.