The build-up to get that housing loan

by Philip Brasor and Masako Tsubuku

Several years ago, we went to a bank in Tokyo that was advertising housing loans with easy terms. Though we weren’t shopping for a loan at the time we wanted to see what was needed in order to apply for one. The bank’s approval criteria seemed simple enough: If you made at least ¥3 million a year, you were practically guaranteed a loan regardless of whether you worked for a company or were self-employed.

We happened to be in the latter camp and chatted with the loan officer for a long time, secure in the knowledge that we would qualify, since we had made more than that amount the previous year. But when we finally got around to looking at our tax returns, there was one problem: The ¥3 million cutoff mark was for net income, not gross. As freelancers, we deduct as many expenses as we are legally allowed in order to reduce our tax burden, and by doing so our net income fell below the ¥3 million line that year — by only ¥10,000. The loan officer said there was nothing he could do about it.

Each financial institution has its own criteria for approving loans, and while we’ve found that major banks tend to be tougher to please, there are so many variables involved that it’s impossible to know for sure until you actually apply. Of course, in cases where you may seem a bigger risk but still get approved, the lender will charge higher interest. Thanks to deregulation, banks are no longer primarily in the loan business and thus can afford to be choosy, but there are other financial institutions perfectly willing to take up the slack.

If you are buying a home through a realtor or having one built through a housing manufacturer or developer, these companies will steer you to a lender who will make the sale happen — but as with anything, it pays to look around, since you might find better terms elsewhere.

One thing any potential homeowner has to keep in mind is that the cost of borrowing entails more than just the interest. If you can pay cash for everything, pay it. If you can’t, pay as much as you can afford, because the higher the down payment the better your chances of getting a loan, and a higher down payment will cut down on incidental expenses.

When you take out a loan there are fees and taxes, as well as insurance and guarantors. You could end up paying as much as 20 percent of the price of the property you’re buying in additional costs, even before you start mortgage payments.

The Internet provides one convenient way of looking for a lender. Almost every bank and lending institution has “simulation” sites where you input your pertinent information, such as age, annual income, and the amount you want to borrow. The results then tell you if you qualify and the terms. There are also sites, such as Zubatto’s (, that carry out comparative simulations, and others, including 1192ya’s (, that compare different lenders’ terms, interest rates, fees and special requirements.

Some “Net banks,” such as Aeon, Rakuten and SBI, don’t even require face-to-face meetings. You can do everything online and through the mail, though the fees for these kinds of operations tend to be higher, sometimes as much as 10 percent of the amount lent. You can even apply for a fixed low-interest Flat 35 loan (a mortgage with a fixed interest rate for up to 35 years), which is guaranteed by the government, through Net banks, though the interest will vary depending on the bank’s own needs. Also, because of government requirements, approval criteria may be stricter for a Flat 35 loan if you are buying a new house. In the end it’s probably better to go directly to a lender with your information and find out for yourself.

We have three strikes against us: We’re self-employed and middle-aged, and make little money. Web simulations, therefore, didn’t offer much for us. We visited an outlet of one Net bank on the recommendation of a builder. This lender works through store-front financial agencies, and the one we went to was set up in a booth in a shopping mall. The agent copied our tax returns, drivers licenses and other pertinent documents. We filled out a form and she gave us the standard speech about there being a preliminary screening that would take less than a week. If we passed that we would then submit more documents for the final screening, and she was careful to point out that if we passed the first screening there was no guarantee we would also pass the second one. We ended up clearing their first screening for a Flat 35 loan, but the interest was slightly higher than average because of our self-employed status.

Collecting the documents for the second screening can be time-consuming. This particular Net bank required proof from the proper tax authorities, both local and national, of our returns for the past two years, which required trips to two different tax bureaus, one in Chiba Prefecture, where we live now, and one in Tokyo, where we lived two years ago. We also had to get copies of our jūminhyo (residency certificate) from our local city office. (Loan applicants who are foreign nationals require permanent residency.) They also needed land-survey and registration information about the property we were buying and inkan shōmeisho, or proof of a personal seal. Since Japanese contracts require seals instead of signatures, individuals must register their seals with their local governments and obtain “proof” that the seals they are using are proper.

We also went to JA Bank. JA is the Central Union of Agricultural Cooperatives, but its bank provides home loans to anyone, even non-farmers. Each JA Bank acts as an independent financial institution, so you need to go to the one that has jurisdiction over the area where the property for purchase is located. We applied for a JA housing loan and after we passed the first screening we were virtually guaranteed a loan. Despite our dodgy income situation, we have a clean credit history and no outstanding debt, which seemed to work in our favor as far as JA is concerned.

However, we had to collect even more documents (three years of tax statements instead of two). And while the handling fee was lower — ¥35,000 as opposed to the Net bank’s ¥210,000 — JA required fire insurance and a guarantor’s fee, neither of which are mandated for a Flat 35 loan but which are required for most regular bank loans. The interest was also slightly higher and fixed for only 10 years, after which it would become variable. Comparing the two loans, we’d pay less in the long run with the Net bank’s, though we’d have to wait at least a month to find out if we were approved. JA told us almost right away that they’d lend us money, which means something if you have to sign a contract for land or a house. Since we were only planning to borrow the equivalent of one-third of the price of a land and house, it was relatively easy to get the loan, but JA also approved a 20-year mortgage for us despite our relatively advanced age.

In the end, we leaned toward JA, even though in the long run we’d pay more. Each borrower’s situation is unique, and our reasoning was specific to us. Since the amount we are borrowing is relatively small, our primary concern is the monthly mortgage payments, and with JA they’d be lower, at least in the beginning. After 10 years the fixed interest would end and there is the likelihood the payment amounts may rise, but by that point the balance of our loan will be small enough to pay off, and while banks will charge kuriage, a fee for paying off your loan early, in our case that fee would be negligible.

Philip Brasor and Masako Tsubuku blog about Japanese housing at