Buying a home in Japan as a foreigner is easy since there are no restrictions on foreigners buying and owning properties, and securing financing from a Japanese bank is straightforward. The most important factor in getting a home loan in Japan as a foreigner is paying income tax in Japan. Without a record of paying taxes in Japan, even Japanese citizens cannot secure home financing. In this article, we will explore the key factors affecting mortgage approval, different conditions for foreigners with working visas VS permanent residency status, and important considerations when seeking financing. If you want to know the list of available banks for foreigners, please check out the article “Home Loans in Japan for Foreigners: Bank Options and Key Differences Based on Visa Status“
1. The Importance of Paying Income Tax in Japan
The first and most crucial requirement for getting a mortgage in Japan as a foreigner is paying income tax in the country. Banks assess an applicant’s financial stability based on their tax records. If you have not been paying income tax in Japan, banks will not approve your mortgage application, regardless of whether you are a foreigner or a Japanese citizen. This means that:
- You must have a stable job in Japan and file tax returns if it is required.
- Your income should be documented through official salary slips and tax certificates.
- If you are self-employed, you must show business tax filings.
If you are new to Japan or have not been filing taxes properly, it will be difficult to secure financing.
2. Mortgage Options for Foreigners with a Working Visa
Foreigners holding a working visa can obtain a home loan in Japan, but they face stricter conditions compared to Japanese citizens and permanent residents (PRs). Here are the key points:
- Limited Bank Options: Only a few banks in Japan provide mortgages to foreigners with a working visa.
- Higher Interest Rates: The interest rate for foreign applicants with a working visa tend to be higher than those available to Japanese borrowers and/or permanent residents.
- Down Payment Required: Most banks require foreign applicants with a working visa to provide a down payment, usually between 10% and 35% of the property’s purchase price.
- Japanese Language Requirement: You may be required to communicate with bank representatives in Japanese without any assistance from interpreters.
- Employment Stability: Banks prefer applicants who have worked for at least one year at the same company in Japan.
Because of these factors, many foreigners with a working visa find it difficult to secure financing. If you are in this situation, it may be worth considering saving for a down payment while applying for permanent residency.
3. Mortgage Options for Foreigners with Permanent Residency (PR)
If you have obtained permanent residency (PR) in Japan, securing a home loan becomes significantly easier. Banks treat PR holders almost the same as Japanese citizens, which means:
- More Bank Choices: You can apply for a mortgage with almost any bank in Japan.
- Lower Interest Rates: PR holders are eligible for the same competitive interest rates as Japanese borrowers.
- No Down Payment Required: Some banks may offer 100% financing without requiring a down payment.
Having PR status gives you financial credibility in the eyes of Japanese banks. This is why many foreign residents in Japan aim to obtain PR before purchasing a home.
4. Other Important Factors to Consider
Even if you meet the visa and tax requirements, there are other factors you need to consider before applying for a home loan in Japan:
1) Employment and Income Stability
- Most banks require applicants to have a stable job with at least one year of continuous employment.
- If you are self-employed, you need to provide detailed financial statements for your business.
- Your income level will determine the maximum loan amount you can borrow.
2) Credit History in Japan
- Having a good credit history in Japan is important. If you have unpaid bills, credit card debt, or late payments, your application may be rejected.
- Some banks check credit records with agencies such as JICC (Japan Credit Information Center).
3) Property Type and Location
- Some banks may refuse to finance older buildings or properties in rural areas.
- If you are buying a second-hand property, banks will check the building’s age and structural condition.
5. Dovetail’s Thoughts
Buying a home in Japan as a foreigner is easy since there are no restrictions on ownership, but securing a mortgage requires careful preparation. The most important factor is paying income tax in Japan and maintaining financial stability. If you hold a working visa, you can get a loan from a few banks but with stricter conditions, higher interest rates, and the need for a down payment. If you have PR, your options increase significantly, and you can access the same mortgage benefits as Japanese citizens.
Before applying for a home loan, make sure you have a stable job, a good credit history, and the ability to communicate in Japanese. With proper planning and help from your agent, owning a home in Japan can become a reality even as a foreigner.
As Dovetail, we recommend our clients apply for PR as soon as they become eligible and start viewing properties to understand what is going in the current market so that they will be able to make informative decision as soon as they obtain PR.