Buying a Property with Loan
Table of Contents
Buying a Property with Loan
Bank Options
Necesssary Items for Loan Application
Buying Flowchart
Various Costs
Necessary Items for Buying
Housing Loan Tax Credit
Since Japan introduced a new work visa category known as the Highly Skilled Foreign Professional Visa, it has become easier for foreign nationals to obtain permanent residency (PR) after 1 or 3 years of stay in Japan. This shift towards relaxed requirements is to help address issues due to Japan’s aging population and labor shortage. One of the benefits for a foreign national to possess permanent residency is to be able to borrow mortgage loans from most major banks at very low competitive interest rates, and this has encouraged many to switch from renting to buying. There are a few banks that will lend mortgage loans to non-PR visa holders, but no banking institutions in Japan will grant mortgage or investment loans to foreigners who do not work and hold a long-term work visa.
Between PR and non-PR borrowers there is usually a difference in how much they can borrow. PR holders are granted greater loan amounts with more competitive rates, and it may even be feasible to borrow for the various fees associated with the purchase. Each bank has its own upper borrowing limit, and this will be affected by the bank’s assessment of the property, the borrower’s income, and other eligibility requirements. If you are not able to secure a loan with a sufficiently high LTV (loan-to-value) ratio, you may have a funding shortfall which will then require you to make additional down payments in cash.
Bank Options
Foreigners with Permanent Residency
Most banks in Japan will lend home mortgage loans to permanent residence visa holders who have worked full-time for at least 1 or 2 years. If you have changed jobs during this time, you are still eligible if there is no interruption in your employment status. Business owners who have run a profitable business for several years in Japan are also eligible with most banks. But even for business owners who are still growing their business that has not yet reached profitability, they may be able to take out a loan called Flat 35 (フラット35 flat-35) from the Japan Housing Finance Agency. Some banks will require borrowers to be able to speak and read Japanese, but others are fine as long as you have an interpreter present at meetings. You should be able to obtain the same competitive loan interest rates and loan periods as any Japanese.
Foreigners without Permanent Residency
There are several banks such as SMBC Trust Bank, SBI Shinsei Bank, and Suruga Bank which you can borrow from. But for SBI Shinsei Bank, you are eligible only if you have a spouse who is a Japanese citizen or permanent residency holder. You may be limited in your lending amount or charged higher interest rates compared to someone with a PR status. In addition, you should set aside 5-10% of the purchase price for various purchase costs. You may need a large amount of cash saved up when buying Japanese property without PR.
Loans for Offshore Buyers
There are no banking institutions in Japan that will grant mortgage or investment loans to foreigners who do not work and earn money in Japan and hold a long-term work visa.
Necessary Items for Loan Application
* loan application form has to be filled out in Japanese
If you file income tax returns in Japan
・ Latest 2 years’ income tax returns (確定申告書 Kakutei-shinkoku-sho)
・ Latest 2 years' of income tax certificate (課税証明書 Kazei-shomei-sho)
If you don’t file income tax returns in Japan
・ Latest withholding tax slip (源泉徴収票 Gensen-choshu-hyo) issued from company
Commonly required items
・ Residence certificate (住民票 Ju-min-hyo)
・ Registered seal (実印 Jitsu-in)
・ Seal certificate (印鑑証明書 Inkan-shomei-sho)
・ Medical exam (if loan exceeds 100 million yen and/or opt for cancer-specific homeowner's life insurance)
・ Required real estate documents (sale and purchase agreement, ownership registration, property inspection certificate, building plans, etc.) will be submitted by your agent.
Buying Flowchart
Consult with banks and sort out your funding
Find out which banks will lend to you and how much you can borrow. For any shortfall, you will have to cover it with cash so make sure you have savings. On the other hand, you may be able to borrow well over 100% of your purchase price depending on the bank’s assessment of the property plus your income, which can then be used to cover your various purchase costs to a certain extent. Bear in mind each bank has its own upper borrowing limit for the various purchase costs.
Initiate your property search
Contact an agent and initiate your property search.
Make an offer and start your preliminary loan application
Submit a letter of intent to purchase (購入申込書 Ko-new-mow-shi-komi-sho) when you have found the right property and start your preliminary loan application with a bank if you have come to terms with the seller. The seller will not engage in any sales contract without your approved preliminary loan application.
Receive Explanation of Important Matters, sign the sales contract, and pay the deposit
Prior to signing the sales contract, receive the Explanation of Important Matters (重要事項説明書 Jyu-yo-jiko-setsumei-sho) from a licensed broker. Once the contract is signed, you will simultaneously pay the seller the deposit (手付金 Tetsu-kay-kin). The deposit amount is capped at 10% of the purchase price, but any amount more than 5% could be accepted at a high chance.
When you take out a loan, there will be a mortgage contingency (ローン特約 Loan-toku-yaku) in the sales contract stating if and when you are unable to obtain the desired loan amount, you may withdraw from the contract without paying a penalty.
In this event, the deposit will be refunded from the seller promptly. However, the buyer cannot for one’s own convenience deliberately prevent oneself from being approved for the loan.
Complete the official loan application with your bank, and once accepted, conclude your loan contract
Start the official loan application with the bank after signing the sales contract. When the loan is approved, open a bank account with your lending bank and conclude the loan contract.
Perform final check of the property
Perform final check of the property with the seller. You will not want any doubts remaining before closing the deal and should ideally have them all brought up at this time.
Settle the outstanding balance of the purchase price and all other fees which are due
Settle the outstanding balance of the purchase price and other split fees (清算金 Sei-san-kin) with the seller reckoned on the closing day, such as property taxes and monthly apartment fees. You will also need to pay all other related closing fees which are due at the same time.
Receive delivery
Receive the keys
Execute ownership title transfer
Immediately after the payment and delivery, an entrusted judicial scrivener (司法書士 Shiho-shi) with the necessary documents from both parties will go to the Legal Affairs Bureau to legally transfer the property ownership title, and to register your lending bank’s mortgage rights onto your property.
Various Costs
Various costs (6 - 9% of sales price, excluding "post-sale fees" and "fees incurred yearly" )
When signing the contract
・ Deposit (手付金 Tetsu-kay-kin) up to 10% of the sales price)
・ Stamp duty (収入印紙 Shu-new-inshi) for sales contract (corresponds to the sales price)
When settling the outstanding balance of sales price (closing)
・ Ownership title transfer registration tax
・ Building description registration and ownership preservation tax (for new building purchase)
・ Agency fee {( Sales price×3%) + 60,000Yen} + consumption tax
・Judicial scrivener fee
・ Pro-rated annual property tax of the year of sale
・ Pro-rated monthly apartment fee of the month of sale (apartments only)
・ Housing insurance premium
・ Bank fee (either under the name of guarantor fee or loan processing fee)
・ Mortgage registration tax (抵当権設定登記費用 Teito-ken-settei-toki-hiyo)
・ Stamp duty for loan contract (corresponds to the loan amount)
Post-sale
・ Property acquisition fee (不動産取得税 Fudosan-shutoku-zei) imposed 1 - 3 months after
Fees Incurred Yearly
・ Fixed asset tax towards land and building
・ City planning tax towards land and building
Necessary Items for Buying
Necessary items
・ Residence certificate (住民票 Ju-min-hyo) 1*
・ Registered seal (実印 Jitsu-in) 2*
・ Seal certificate (印鑑証明書 Inkan-shomei-sho) 3*
・ Non-registered seal (認印 Mitomay-in) 4*
・ ID (residence card, passport, or other photo ID) 5*
When will you need it
1* upon bank loan contract signing and closing
2* upon bank loan contract
3* upon bank loan contract
4* upon sales contract signing and closing
5* upon sales contract signing and closing
If you take out a housing loan, you can potentially have a deduction of 0.7%* of your remaining loan balance each year from your income tax for 10years, the upper limit being 140k* per year, if you satisfy the following requirements:
* The maximum deduction and the period of deduction will be extended based on the level of energy efficiency of the building.
Borrower’s eligibility
1. Your property purchase is before December 31, 2030.
2. Your total annual gross income is under 20 million yen (10 million yen in some cases).
3. You have an outstanding balance at the end of each eligible year.
4. You commence residing in your purchased property within 6 months of acquisition.
5. You do not benefit from any other tax breaks within 3 years counting from the year before the sale,
Housing Loan Requirements
1 The loan is for purchasing your primary residence (自己の居住用 Jiko-no-kyo-ju-yo) on a freehold lot.
2. The initial loan term has to be more than 10 years.
Requirements for the Property
1. One half of the building floor space has to be used as residence.
2. The total floor space has to be more than 50m2(*).
3. It needs to be built after Jan 1, 1982. Properties built before that date must meet the new earthquake code (耐震基準 Taishin-kijun) verified by seismic diagnosis.
*It can be between 40 - 50sqm if some specific conditions are met, but in that case your total income must be less than 10 million yen.
Avenue Far East is neither qualified nor authorized to give legal or tax advice, and any such advice shall be obtained from an appropriate, qualified professional advisor of your own choosing. Moreover, the stated requirements may be revised at any time and the information contained here may not be up to date. Therefore, it should be used for reference only.