Home Mortgages in Japan

Some information on borrowing options

Photo by Kostiantyn Li on Unsplash

I’ve gotten 4 mortgage / property loans in Japan so far — I am not an expert, but I would say I have some experience. Also note, succeeding in getting 4 loans meant I applied to more than 10 banks because success isn’t guaranteed!

General Qualification

First off — who can borrow?

• Japanese Citizens and Permanent Residency holders can go to any bank and may qualify for 0 down payment loans.
• Visa-holders have a much narrower range of bank options, and typically need to put 20% down payment but interest rates will be the same.
• Either case, you will need to show Japanese income* over the past year (ideally a few years). By this I mean you will need to have filed taxes in Japan.

*A bit more on income:

• Your pay stubs in Japan and your tax filings are what really counts (if you have only a few months or half year on tax filings, you may need to wait another year to max out your borrowing potential).
• Your overseas income does not really count (real estate rental income, and non-japan taxable income).
• The amount of cash or assets you have does not really count.

I wrote “does not really count” for the last 2 points because on the surface it doesn’t help you qualify, but it can help you a little at later phases I hear.

Home vs Investment Loans

There is a huge difference between a primary resident home loan and a 2nd home vs an investment loan. In Japan, the home loan (jyuutaku 自宅) is for your primary residence only and you must live there. If you move at some point in Japan or overseas, the bank expects you to sell the house since you no longer live there, or refinance as an investment or 2nd home.

These primary home loans have the famed < 1% interest rates. Investment and 2nd home loans can range from 1.5% to 3.5% — hence there is an obvious desire to get a jyuutaku loan (or two if possible).

Borrowing Limits

The typical borrowing calculation does not take into account your assets nor the amount of down payment planned (I have been denied even when offering 35% down!) The basic max loan calculation is 7x your annual income (I believe it is your total taxable gross income including bonuses etc — ie, the amount on your tax filing, rather than your monthly gross salary * 12). Some say 10x — but it might depend on which amount you use as the multiplier.

Things that limit your borrowing are outstanding debt and payment obligations

• Overseas real estate — oddly/unfairly they take the loan payment into consideration, but not the rental income (??)
• Investment real estate loans — a few banks do not include whole building investment real estate (Aruhi for eg), but most will count them against your max borrowing limit
• Other debts like credit cards or loan shark debts (just kidding on the latter, those won’t matter but you may have bigger problems in life..)

The Storyline & Why is Important in Japan

Japan is a country that has high regard for your reputation, stable job history, life story, etc. Hence red flags for banks:

• Changed jobs or addresses a lot or are new to Japan
• Have delinquency in paying your federal or local taxes
• The reason for buying the property does not make sense to them

The 1st and 2nd points are checked by the documents you submit. The 3rd point sounds strange to westerners as it has little financial bearing — but Japanese Banks want to see/hear your plan so explain it seriously. Good and bad reasons:

• If you are moving into a huge house as a single person, despite being able to afford it — bad.
• If you are moving into a smaller house with family — bad.
• You are needing a loan to buy a bigger house since your wife is expecting —you would think it is TMI — good.

Flat 35 and JHF Loans

You probably have seen the term “Flat 35” — the term has a dual meaning.

• Most loans in Japan are 35 years and traditionally are flat/fixed rate so one might say they are flat-35 loans
• Flat 35 is the official name of the JHF government program to help fund loans by buying them from banks to bundle as Mortgage Back Securities — similar to Fannie Mae in the US

My understanding is that most loans are privately held by banks and are NOT Flat35. These banks will hold debt, resell, or bundle as private issue MBS products. A few key things about Flat35 vs Private that is sometimes counter-intuitive

• Private loan rates are often better and offer variable rates as an option
• Flat35 has a fairly high servicing and an origination fee of roughly 2% of the loan
• Flat35 max is 80m JPY
• Flat35 has looser employment history and health standards (no health check)
• Flat35 does not include life insurance to cover the loan in case of death (almost all private loans do, hence the health check)
• Flat35 does not have prepayment fees (and you will be rebated part of the 2% servicing and origination fees if you exit early)
• Flat35 seems a tiny bit more strict on building quality and standards (not sure of specifics)

I didn’t realize this before, but it seems the Flat35 program is for higher-risk applicants, hence higher rates and fees. Some banks offer both private and Flat35’s with premium customers skipping the Flat35 option.

English PDF of Flat35 details

Fixed Rate vs Variable?

There are a few arguments to consider

• Rates can only go up
• Rates haven’t gone up in 12yrs and are unlikely to go up alot
• The rates are so low that it hardly makes a difference

1st 2 points are interesting — mortgage rates mirror the funding rates, and funding rates in Japan are near 0 (or even negative). Both consumer debt and corp debt are tied to this cheap funding to run the country. A rise of 1 or 2 full percentage points would crush the economy since businesses routinely need to renew debt financing, and would suddenly be facing a crisis. Hence it is possible/likely that rates will creep up, but it is hard to imagine more than a 0.1% or 0.2% increase in a year.

The 3rd point is the most important. If you are debating a 0.7% variable vs a 1.2% fixed, then the 0.5% is probably adding 6–7% to your loan payment per month. If money is tight, it matters, but it also means you probably shouldn’t risk it.

Also notable timing — Japan Property Central posted an article about rising interest rates below that is worth reading.

Home loan interest rates rise in November

Final Tips

• Getting PR will help but it shouldn’t stop you from getting a loan — rates will be the same, but the down payment and bank options will differ
• Your real estate agent can usually find and fill out the loan application forms for you, but eventually you will need to go in person (likely need a friend to translate if you can’t speak basic Japanese)
• Many properties that look like a great deal won’t qualify for loans (overbuilt houses, small road frontage, illegal modifications etc)
• If you apply and fail, keep trying! I failed many times to get loans but kept trying and eventually found a bank lender that would take me!