High-end Realty Specialist

This third column will discuss「④What Is a Home Loan Review?」

◆4． What Is a Home Loan Review?

When planning to purchase a home using a home loan, the first step is to undergo a review by the financial institution providing the home loan.

Financial institutions scrutinize buyers who will become debtors to minimize future default risks. Therefore, financing is only provided to persons from whom they can expect to recover the debt.

In summary, home loans review by financial institutions focus on two main points.

These are the collateral value of the property and the loan applicant’s repayment capability.

The following is going to explain these two points in detail.

• 【4－(1)．The Collateral Value of the Real Estate】

The Collateral Value of the Real Estate is determined by calculating the appraisal value of the real estate and assessing the real estate’s future sales price.

Financial institutions assess real estate using their own assessment criteria. If repayments are delayed, they may need to sell the property to recover their funds.

The general criteria include the real estate’s land area, exclusive area, layout, and location. In addition, if the purchase price is reasonable compared to market transaction examples, it should not be a significant issue.

Furthermore, extremely small properties (e.g.,  studio apartments around 20 ㎡ ) might be considered investment properties rather than personal residences, and thus may not qualify for a mortgage.

• 【4－(2)．The Loan Applicants’ Repayment Capability】

The loan applicants’ repayment capability, which can be seen as their creditworthiness, is a crucial aspect of the review process.

The following  points are considered when assessing creditworthiness:

　①　Personal Credit Information

Financial institutions will inquiry institutions for the applicant’s personal credit information. There are three personal credit information agencies: CIC, JICC, and KSC, each providing different registered information. Through these agencies, past payment delays (whether habitual or temporary) and major financial issues (e.g., long-term loan arrears, personal bankruptcy, or debt restructuring). If there are any issues here, it will result in failing the preliminary screening, making it difficult to secure a home loan.

　②　Age at Loan Repayment Completion and Initiation

Many financial institutions set the maximum age for loan repayment completion at 79 or 80 years. Therefore, if you plan to take out a loan with a maximum loan term of 35 years, the ideal borrowing age is around 44 to 45 years.

　③　Length of Employment

　④　Annual Income

　⑤　Employment Type

These factors are evaluated to determine if the applicant has the ability to repay the loan based on their employment situation.

For individuals with long-term employment at a company, financial institutions may consider them to have stable long-term income, which is necessary for a long-term loan of 35 years. Some institutions may require a minimum of 2 years of employment, making it difficult for those who have recently changed jobs to secure a mortgage.

Moreover, some institutions may calculate the applicant’s projected 12-month annual income based on at least three months of salary slips (the general case) for assessment.

However, in some cases, the estimated annual income calculated as a monthly salary×12 months does not include unpaid bonuses, which may be awarded twice a year in some companies. This lower projected annual income, compared to the actual income, can affect the loan amount and repayment ratio. Therefore, there is a possibility that the desired loan amount may not be approved.

Additionally, for self-employed individuals, company executives, or business owners, financial institutions may require several years’ worth of financial statements or personal tax returns to verify their stable incomes and explanations of future business plans.

As a result, new business owners or self-employed individuals who cannot provide the required number of financial documents may often find it difficult to obtain a mortgage from financial institutions.

　　⑥　Repayment Burden Ratio (Repayment Ratio)

Regarding this, as explained in the previous column (Part 2: How Much Can You Borrow?), the loan amount is evaluated based on the repayment burden ratio (repayment ratio) calculated based on annual income.

　　⑦　Health Condition

When applying for a home loan, many financial institutions require enrollment in a group credit life insurance policy (団信,　Dansin) as a mandatory condition. You may need to submit a disclosure form related to the insurance at the time of the main loan application.

Based on the content of the disclosure form and, if necessary, any medical certificates submitted, the types and conditions of the insurance you can qualify for are assessed. These include general credit life insurance (covering only death), insurance with disease coverage (covering three major illnesses and lifestyle-related diseases), and wide credit life insurance (which offers relaxed underwriting criteria for those unable to join general insurance due to health reasons, typically involving a higher interest rate).

【4－(3)．Summary】

When applying for a home loan from a financial institution, first of all, it is important to accurately understand your personal credit information, employment status, annual income, and health condition.

Additionally, for salaried employees, whether your employer is a publicly listed or unlisted company can be a consideration.

If you do not have significant financial issues in your past, start by applying for a preliminary home loan assessment with an online bank or other institutions.

If there are no issues with your application or income mismatch, you should receive a positive preliminary assessment. It is generally recommended to obtain loan pre-approval before proceeding with a property purchase application.

After applying for the property purchase, you will typically proceed with the sales contract within about a week and then apply for a home loan with your desired financial institution.

Please note that completing a preliminary loan review does not obligate you to borrow from that financial institution.

Additionally, home loans are offered by various financial institutions, each with its own features. Therefore, it is advisable to thoroughly research and consult with experts before making a final decision.

In this third home loan column, we have provided a brief summary. If you have any concerns or would like more detailed information, please feel free to contact us through the inquiry form.

Stay tuned for the fourth installment of the column.

Thank you for your continued support.

 

For more information