Your ties to Japan matter
Japanese banks will offer mortgages to help foreigners resident in Japan purchase a home. These 'Home Loans' have traditionally very low interest rates, however there are a variety of prerequisites that will assist with a successful application:
• Holding a permanent Resident Visa
• Holding a Work Visa
• Being the spouse of a Japanese national
• Having a child or children attending a school in Japan
In addition to the above, evidence of working in Japan for at least 3 years will be advantageous. Also, showing job security by not having moved between employers will be beneficial. As proof of income you will need to show the lender your Withholding Tax Statement (源泉徴収票 , gensen-choshusho).
Japanese language requirements
As mentioned in previous parts of this guide, legal contracts will be in Japanese so it is important to either be proficient in the Japanese language or have a trusted translator and confirm this is acceptable to the bank.
Your age and health matters
Typical mortgages in Japan have a maximum term of 35 years and it is expected the applicant will be no older than 80 years old when the mortgage loan is finally repaid.
The bank will also require protection from the borrower dying or having a long term illness preventing the repayment of the mortgage. This is done through the borrower having Group Life Insurance (dantai shin’you seimei hoken , 身体信用生命保険) in place which will either be bundled with the monthly repayment amount or as a separate policy and payment.
Banks and their terms
Popular banks that offer mortgages to foreigners are shown below, but not all banks have information available in English:
• SMBC Prestia
• Suruga Bank
• Shinsei Bank
• Tokyo Star Bank
• MUFJ Bank
• Mizuho Bank
• Mitsui Sumitomo Trust Bank
• Bank of China
Loan Amount: Typically up to JP¥ 100 million.
Property/Mortgage %: Banks base their mortgage appraisal on the value of the land rather than the property so with the land value making upwards of 85% of the purchase price the purchaser needs to be prepared to fund at least 15% from cash. Taking into account the mortgage down payment, Ernest Deposit and other fees/taxes the purchaser should be aware that up to 35% of the total purchase price may be required as cash.
Salary Multiplier: Typically a loan can be up to 8x of annual salary but with the mortgage repayment being 25% of monthly income.
Mortgage Interest Rates: Either fixed, typically for 10 years, or variable. No rate percentage is mentioned in this guide as they are affected by the prevailing economic situation and outlook.
Early Repayment: Banks can add a clause that prevents early repayment or will impose fees if the mortgage is repaid early. If you are considering that early repayment maybe an option would be to check the loan contract to see if this is viable or even possible.
The Loan Process
It is typical in Japan for the seller of the property to be confident that the buyer is able to have the financing in place, even if application to purchase or letter of intent have clauses allowing the buyer to walk away if a mortgage application is not successful. It is therefore a good idea for the buyer to enter into discussions with the bank/s before making an offer. This shows you are serious about purchasing the property and will help kickstart any negotiation process.
The 4 steps of securing a mortgage are:
• Pre-application (事前審査 , jizenshinsa)
• Application (本審査 , honshinsa)
• Mortgage document signing
• Mortgage Execution
The bank will check the applicants personal credit information and this includes looking at the applicant's place of work along with past and current debts. Documents that are required as part of the Pre-application are:
• A completed Pre-application form;
• Identity Document, such as a passport or driver’s license;
• Health Insurance Card (健康保険証 , kenko-hokensho);
• Withholding Tax Statement (源泉徴収票 , gensen-choshusho);
• Details of other loans outstanding and their repayment schedule;
• Layout plan of the property the mortgage is being applied for.
A decision from the bank can be expected within a week.
Application and Document Signing
Once the purchaser wishes to move forward with the mortgage application the bank will investigate the property's value, state of repair, and contract conditions. If the application is rejected the applicant could look at reducing the loan amount by paying a larger cash deposit.
If the loan still cannot be secured then the clause in the sales agreement will take effect and the contract will be cancelled and the Ernest Deposit returned.
If the mortgage application is successful the mortgage documentation is signed between the borrower and the bank along with deciding the date of execution of the mortgage.
This part of the process can take up to one month to complete.
On the execution date the loan amount will be transferred into the property purchaser’s bank account. On the same day the purchaser will meet with the seller, a representative from the real estate company, and a legal scrivener to execute the sales contract.
The procedure of the execution of the sales contract and remaining matters will be covered in the final part of our Property Buying Guide.