Compared to when a Japanese person buys a property in Japan, it is twice as hard for a foreigner. Especially in regards to home loans, it is more difficult for non-Japanese citizens.

This article will explain in detail the process of applying for a home loan in Japan as a non-Japanese citizen. We hope that through this article will enable more foreigners to earn a home loan, and live in Japan.

What are the conditions for a non-Japanese citizen to apply for a home loan?

Firstly, are foreigners allowed to apply for a home loan? The answer is yes, if they pass certain conditions.

For a foreigner to apply for a home loan, the following three will help make the process go smooth.

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1. The type of visa the applicant owns

In order to live in Japan, a foreigner must apply for a visa. Ranging from tourism to permanent, there are about thirty types of visas. The type the loan applicant owns will determine whether or not they will be able to apply for a home loan.

The types of visas which are advantageous in applying for a home loan are the following.

Is a Permanent Resident Visa necessary?

A Permanent Resident Visa allows the holder the right to live in the country which granted them the visa without any period of duration limits. It is also the most advantageous visa when applying for a home loan. When obtained, the holder will be treated the same as a Japanese citizen, and will be able to apply for the loan.

Note that a Work Visa or Spouse of a Japanese National Visa is different from a Permanent Resident Visa, as it does not necessarily guarantee its holder the right to apply for a home loan.

2. The period of time worked at a Japanese company

The longer a foreigner works for a Japanese company, the more advantageous they are when applying for a home loan. Additionally, if they have not transferred jobs, and worked for one company for numerous years, they have a higher chance at getting accepted. However, if they switched to a company within the same industry, the effect will not be as bad.

On average, it is recommended to have worked in a Japanese company for three years.

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3. A Japanese spouse

If the applicant is married to a Japanese person, they have a higher chance of getting approved for a home loan.

The applicant becomes more advantageous if they have a child who is enrolled to a Japanese school.

Step 1: Home Loan Pre-Application (事前審査 - jizenshinsa)

What is a Home Loan Pre-Application?

Also called pre-qualification, a pre-application (事前審査 - jizenshinsa) is conducted by a financial institution (e.g. a bank) prior to the actual application in order to determine if the applicant is qualified to borrow money from them. If the applicant is approved in this stage, it is more likely for the actual application process to go smoother.

A pre-application can be conducted for free, however, it should be noted that there are some banks that do not provide this service.

During this process, the applicant will be able to know the following.

What information does the bank check?

Personal Credit Information

The information financial institutions use to determine the credibility of the loan applicant is called personal credit information. Criteria include, among others, the applicant’s place of employment and previous and present debts.

The following organizations manage personal credit information:
Credit Information Center (ICC - http://www.cic.co.jp)
Japanese Bankers Association Personal Credit Information Center (http://www.zenginkyo.or.jp/pcic)
Japan Credit Information Reference Center Corporation (http://www.jicc.co.jp)

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Current Debts

If a person applies for a home loan with remaining debts, such as student loans and auto loans, the pre-application process might be difficult to pass. In the bank’s perspective, they cannot trust a person with plenty debts.

Before applying for a home loan, it is advised to finish paying other debts as early as possible.

Duration of Employment and Income

Financial industries trust those who have worked for the same company for numerous years, as it confirms they have a steady income. On average, more than three years of employment is the recommended duration.

Health Condition

Most banks require the loan applicants to register for a Group Credit Life Insurance (団体信用生命保険 dantai shinyo seimei hoken). Therefore, to enter, the applicant must be in a good health condition.

There are also programs which allow those with the so-called “three major illnesses” (i.e. cancer, acute myocardial infarction, and stroke) to register. Therefore, it is advised to maintain a healthy lifestyle.

Pre-Application Process

The pre-application will be following this process.

It is recommended to go through the pre-application process with a desired property in mind. The bank will consider the property’s collateral evaluation (property value) as a pre-application criteria, meaning -having a specific property makes it easier to determine the loan amount.

One way to find out the bank’s loan conditions without a specific property in mind is to search for a similar one and apply it for pre-application.

Depending on the season, the pre-application process will take about two working days to one week.

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Required Documents for Home Loan Pre-Application

The following documents will be required during the pre-application process.

Important Notes When Applying for a Home Loan

It is advised for the applicant to fill in the required documents themselves. Depending on the financial institution, a family member may substitute, however, there are certain sections to be filled only by the applicant.

Important Notes After Applying for a Home Loan

On average, the maximum loan amount allowed for a person to borrow is eight times their annual income.

However, if the property’s collateral value is low, which is often the case for old properties, it might be difficult even for applicants with high income to be granted a loan. Therefore, be aware that the loan amount will change depending on the property.

Step 2: Home Loan Application (本審査 - honshinsa)

What is a Home Loan Application?

After the pre-application is finished, the actual home loan application is conducted.

The duration of this process will last about fourteen working days. However, in the busy months of February and March, the process may extend for up to a month.

What information does the bank check?

In the pre-application process, the bank evaluates whether or not the applicant would be able to repay the loan. In the application process, aside from that information, the desired property’s collateral value, the applicant’s health condition, and other criteria will be checked.

The applicant’s health condition is checked in order for the financial institution to determine if they are applicable to register for a Group Credit Life Insurance.

Group Credit Life Insurance (団体信用生命保険 dantai shinyo seimei hoken) is an insurance organization that will pay the remaining home loan when the borrower is undergoing a critical illness, or has passed away.

If the applicant does not meet the criteria to register for the insurance, it will be difficult to get accepted for a home loan.

Therefore, note that there is a chance that the applicant will not get approved in the actual application, despite having passed the pre-application.

Application Process

The application will be following this process.

On average, the financial institution which handled the pre-application process will also handle the application process. However, the applicant may change their chosen institution for this stage.

Additionally, it is not required to borrow home loan from the institution that handled the application process. It is recommended to apply with different financial institutions and compare factors such as the interest rate.

Required Documents for Home Loan Application

The following documents will be required during the application process.

The Types of Home Loan Interest Rates

The types of home loan interest rates (金利 kinri) differ depending on the financial institution, however, they can be sorted into two major types.

Hendo Kinri - Variable Interest Rate

A variable interest rate (変動金利 hendo kinri) is a type of interest which changes by the decision of the bank. On average, the interest rate will change every six months.

One merit is that when the market value is low, the interest rate will decrease as wel. Oppositely, if the market value increases, so will the interest rate. This might drastically change the loan borrower’s initial repayment schedule.

Kotei Kinri - Fixed Interest Rate

A fixed interest rate (固定金利 kotei kinri) is a type of interest which does not change for a long period of time, or throughout the duration of loan repayment. On average, the interest rate will only change every five or ten years.

A fixed amount will enable the borrower to plan their repayment schedule easily, however, if the market value is high during the period of purchase, the interest rate will also be high for a long duration.

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If the home loan application is rejected

There are two solutions for when an applicant gets rejected for a home loan.

1. Reapply in a different financial institution

Firstly, apply for home loan in a different financial institution. As the criteria differs depending on the institution, there is a chance to get accepted.

2. Reduce desired loan amount

Another solution is to reduce the desired loan amount. Increasing the initial deposit amount will improve the chance of getting accepted in the application process. However, if the reason of rejection is due to health conditions, reducing the desired loan amount will not guarantee approval.

It is also advised to consult with a real estate agency or bank in such cases.

If the application is still rejected

According to the conditions of the Sales Agreement Contract, if a home loan is not approved by a certain period, the contract will be annulled and the deposit will be returned.

Therefore, if the home loan application is rejected despite conducting the aforementioned solutions, the contract will be declared invalid.

*During the application process, note if this condition is included in the property’s sales agreement contract.

Step 3: Signing the Loan Agreement

Once the application process if finished, the next step is to sign the Loan Agreement.

What is a Loan Agreement?

A Loan Agreement (金銭消費貸借契約 kinsen shohi taishaku keiyaku) is a contract between the loan lender (e.g. financial institution) and borrower, which includes specific conditions.

Signing the Agreement

A loan agreement usually includes the following conditions.

On average, it is recommended to conduct this process a week before executing the home loan.

Loan Agreement Process

Required Items

Important Notes When Signing the Loan Agreement

Some financial institutions will require the loan borrower to submit the Loan Agreement, Residence Certificate, and Certificate of Registered Seal under their new address. In addition, the Residence Certificate must have the names of all people under the applicant’s household.

If the applicant has other matters with the bank they are borrowing the loan from, it is required to bring a seal, bank passbook, and cash card. If the applicant does not have any other matters with the bank, they will be required to create a new bank account, thus it is necessary to bring a seal.

The whole procedure will take about one to two hours.

Step 4: Execution of the Home Loan

Once the agreement has been signed, the loan amount will be transferred to the borrower’s bank account, and remaining amount for purchasing the property will be settled. This step is generally called the “Execution of the Home Loan.”

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What happens during the execution of the home loan day?

During the day of home loan execution, the loan amount will be placed in the bank account of the loan borrower (property buyer). On the same day, the borrower will meet the property owner, the representative of the real estate agency, and the judicial scrivener for the final payments and confirmation. Once the property owner gives the buyer the key, the exchange will be finished.

The execution process is as follows.

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Required Items

Important Notes When Executing the Loan

It will take three days to one week between the signing of the Loan Agreement and executing the loan. In addition, it will take one to one and a half months for the loan to be executed after the signing of the Sales Agreement Contract.

If the loan execution is conducted in the end of the month, it will take about an hour for the loan to be sent to the borrower’s bank account.

Conclusion

This article has introduced the procedure for a foreigner to obtain a home loan in Japan. In order to be approved, it is recommended to start repaying other debts as soon as possible.

Although applying for a loan requires many steps and forms, having a complete understanding of the process and thorough preparation will help the application go smooth.

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