How much can you actually borrow, as opposed to how much you will be lent
Being approved for a loan is not evidence that you can afford it. The two assessments use different inputs, over different time horizons, and they are made by parties with different exposures. The bank holds security over the property and can be made whole in a bad outcome. You cannot.
The three ratios, and which one is yours
Loan to value
The amount borrowed divided by the valuation. Banks in Vietnam commonly lend up to 70% of the valuation on a completed property, sometimes higher on projects they have partnered with. The example loan on this site is 2.4 billion against a 3.5 billion valuation, so 68.6%.
Loan to value is the bank’s ratio, not yours. It measures how much cushion the bank has if it has to sell. It tells you nothing about whether the payments fit your month.
Debt to income
The required monthly payment divided by gross monthly income. Banks typically want this under 50 to 60% including all other debt. This is the ratio the credit assessment turns on, and there are two problems with treating it as an affordability test.
First, it is frequently computed on the promotional payment. On the example loan that is 23,800,000 dong against 55,000,000 dong of household income, so 43.3%. Comfortable. From month thirteen the required payment is 31,850,000 dong, which is 57.9%. At a floating rate two points higher it is 35,650,000 dong, which is 64.8%. Same loan, same household, three very different answers.
Second, a ratio to gross income ignores everything else in the budget. Fifty percent of income is survivable for a household spending 15,000,000 dong a month on everything else and catastrophic for one spending 30,000,000.
Surplus after the payment
Income, less living costs, less the required payment. This is the only one of the three that is about you, and it is the one no bank computes.
| Month 1 | Month 13 | Month 13, rate +2 points | |
|---|---|---|---|
| Household income | 55,000,000 | 55,000,000 | 55,000,000 |
| Living costs | 20,000,000 | 20,000,000 | 20,000,000 |
| Required loan payment | 23,800,000 | 31,850,000 | 35,650,000 |
| Monthly surplus | 11,200,000 | 3,150,000 | −650,000 |
That last column is the whole point of this article. A household that is approved comfortably, on a loan at 68.6% of valuation, is in deficit in month thirteen if the base rate rises by two points. Nothing unusual has to happen. No job is lost, no illness occurs, the base rate simply does what base rates do.
A workable set of limits
These are not regulatory thresholds and no bank will apply them for you. They are the thresholds that keep a household solvent through an ordinary bad year.
| Test | Applied to | Threshold |
|---|---|---|
| Payment to income | The peak required payment, at the floating rate | Under 40% |
| Stressed payment to income | The peak required payment, floating rate plus 2 points | Under 50% |
| Surplus after everything | Income less living costs less the stressed payment | Positive, by at least 10% of income |
| Emergency fund | Cash, after the deposit and all fees are paid | Six months of the peak payment |
On the example loan, six months of the peak payment is 191,100,000 dong. That is money that has to exist after the deposit of 1.1 billion dong and 15,000,000 dong of fees have gone. Households routinely plan the deposit to the last dong and arrive at drawdown with nothing behind them, which converts any interruption in income directly into arrears.
Working backwards to a sane loan size
Rather than asking what you will be lent, fix the payment you can live with and solve for the loan.
- Set the ceiling. 40% of household income. On 55,000,000 dong that is 22,000,000 dong a month.
- Apply it to the stressed floating rate, not the promotional rate. Base plus margin plus two points, so 13.5%.
- Solve for the principal. Under equal principal over 240 months, the first floating-period payment is roughly the balance divided by 240 plus the balance times 13.5% divided by twelve. Setting that to 22,000,000 gives a principal of about 1.43 billion dong.
- Sanity check the deposit. At 70% loan to value, 1.43 billion dong of borrowing supports a property of about 2.04 billion, needing roughly 610 million of deposit plus fees.
The gap between that and the 2.4 billion the bank would happily lend is the gap between affordability and approval. It is roughly 40%. Whether to close it is a judgement about your own circumstances, not a calculation, but it should be made knowingly.
Four things that change the answer
- Income growth. A payment that is 58% of income today is 48% in five years at 4% annual growth. Real, but not guaranteed, and it does not help in month thirteen. The loan inspector takes a growth rate and applies it, so you can see both views.
- Income concentration. Two earners at 27,500,000 dong each is a structurally safer 55,000,000 than one earner at 55,000,000, even though every ratio is identical.
- Income variability. If a meaningful share is bonus, commission or business income, run the test on the base salary alone and treat the rest as overpayment capacity.
- What the property costs to own. Management fees, parking, maintenance, property tax and the furniture nobody budgets for. On an apartment this is often 3,000,000 to 6,000,000 dong a month that did not exist while renting.
The test to run tonight
Open the loan inspector, enter the offer, and set the stress test to two points. Then look at one figure: the surplus in the worst month. If it is negative, the loan is too large, and it is too large regardless of what any bank has approved. Reduce the principal until it is positive with room, and use that as the number you go shopping with.