Financing your Property

Obtaining a loan to finance your dream house has become easier over the past few years. Despite the market turmoil, several lenders are willing to make loans available to creditworthy individuals, even if they have permanent residency. These include National Australia Bank, Commonwealth Bank Australia, HSBC, Suruga Bank and Mizuho Bank.

Commonwealth Bank Australia is one of the more active of these lenders, especially for resort properties. The loan process can be taxing in the best of circumstances, but greatly simplified by hiring a mortgage broker.  

“I’m always happy to speak with prospective borrowers without any commitment to help them understand if it’s possible to get a loan for the property they wish to finance,” says Tony Collins of IFG Asia Mortgages. A broker will review your objectives and financial circumstances to match you with the most appropriate lender. The broker can also check with multiple lenders, saving you time and energy, since you won’t have to run around and do it yourself.  

It’s also a good idea to request a “pre-approval” before negotiating your purchase contract on a property. This will give you an idea of what amount you can borrow, and in which geographic areas a lender is willing to provide financing.

Resort areas such as Niseko, Karuizawa, Hakuba and Minakami are generally fair game, but property in Okinawa can be more difficult. A pre-approval will increase your bargaining leverage when negotiating your purchase price, as you will know both your financial resources and the timeline in which you will be able to close on the purchase.  

Preparing for the loan application process involves gathering key information so the lender can determine if you will be able to repay the loan in accordance with the initial repayment schedule.

Collect three years of tax returns, with details on all forms of recurring income (such as salary and bonuses). Prepare a table of your financial assets (bank deposits, CDs, stocks, bonds, etc.) and liabilities (mortgage loans, credit cards, automobile and student loans). Also bring along your CV to show your employment history.  

Be sure to consider the affordability factor when planning for your loan. Unexpected circumstances such as not getting a bonus, loss of a job or repatriation should all be considered. Evaluate local rental rates for similar properties in the area in which you’re contemplating your investment to see what type of rental income you might get, should you need to let the property.  

If the rental income comfortably covers your loan payment and property management expenses, you can remove one potential point of worry.  

For resort properties, lenders typically lend about 50% of the property valuation. Valuing property in resort areas can be more difficult than in urban areas, so collecting information on recent sales of similar properties is a good idea.   When purchasing used properties, lenders often look for assurance the property conforms to local building codes. Obtaining a copy of the proof of inspection (kakunin zumisho) is also strongly advised.

In addition to the purchase price, various costs related to the acquisition and financing typically add 8-10% to the total cost. Real estate brokerage is generally 3% (but in this market, you can likely negotiate this lower). Loan origination fees range from 0.50% to 2.0%.  

Other fees include the mortgage broker (if you use one), legal scrivener for mortgage registration and services, real estate transaction tax and property insurance. Some lenders will finance some of these costs as part of the loan, so be sure to inquire with your lender.