When starting real estate investment, it is often the case that a loan is taken out from a financial institution such as a bank, and it is also an advantage of real estate investment that you can use leverage (a large amount of money can be traded with a small amount of funds).Even if it is a loan, it is more likely that you will be able to make a loan with better terms than if you do not understand the mechanism, and it will be greatly involved in the success of real estate investment.
How can I get a loan that suits me and on the best possible terms?This time, I will introduce you to what you need to know when making a loan.
table of contents
- 1 Types of loans available for real estate investment
- 2 Various financial institutions that can receive real estate investment loans
- 3 What is the difference between a home loan and a real estate investment loan?
- 4 What are the market rates for variable interest rates and fixed interest rates for real estate investment loans?
- 5 What are the conditions that make it easy to pass the review of real estate investment loans?
- 6 Flow up to borrowing a real estate investment loan
- 7 Real estate investment loan risk
- 8 Summary
Types of loans available for real estate investment
Real estate investment loans include apartment loans and property loans.
Apartment loan
The apartment loan is a packaged product, and it is assumed that the repayment will be made from the salary income from the main business.The loan limit is assessed by the investor's annual income, as rental income is not considered much.
In many cases, if you can clear the checklist conditions for each financial institution, your application will be approved.Although the limit is lower and the interest rate is higher than the regular loan, the advantage is that the loan period is long.
In addition, apartment loan products of financial institutions often assume the construction of the property and may not support the purchase of second-hand properties.Many financial institutions are city banks, regional banks, and non-banks.
Proper loan
A proper loan is a loan that is obtained without going through a guarantee company, and even individual investors undergo the same screening procedures as business companies.There is no checklist like an apartment loan, and the loan is decided on an individual basis.
From the perspective of financial institutions, there is a risk of bad debt, and there are conditions such as making a legal heir (heir determined by the Civil Code) a joint guarantor.There is also the advantage that there is no money guarantee fee and there is no limit.Many financial institutions are city banks, regional banks, credit unions, and credit unions.
If you summarize each feature, apartment loans are for individuals, and the interest rate is high, the limit is low, but long-term repayment is possible, and if the screening period is short and the conditions can be cleared, the loan is easy to pass.Proper loans are for business companies and the interest rate is low, but it can be said that it is difficult to review because the repayment is in the short or medium term.If you start real estate investment in a second-hand apartment, most of them will be a proper loan.
Various financial institutions that can receive real estate investment loans
Financial institutions that offer real estate investment loans include:
City bank
Mizuho Bank, Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation, Resona Bank, and Saitama Resona Bank are five banks, with head offices in major cities such as Tokyo and Osaka.Among them, Mizuho Bank, Bank of Tokyo-Mitsubishi UFJ, and Sumitomo Mitsui Banking Corporation are particularly large-scale organizations and are called megabanks.The interest rate is low, but the examination is strict and the hurdles are high.
Local bank
A regional bank is a bank that operates in a specific region or region.There is an advantage that real estate investment loans are easier to pass than city banks, but if the profitable property is near a regional bank, it is often difficult to get a loan.It can be said that it is a bank that takes a strategy that is more deeply rooted in the region than a city bank.
Credit union
It is a non-profit corporation of a cooperative organization funded by members, and unlike a bank that prioritizes the interests of its shareholders, it places importance on contributing to the local community.The condition is that the profitable property or home is near the credit bank, and even if the funds are small, it is easy to borrow a loan, but the interest rate is often high.
Japan Finance Corporation
A financial institution wholly owned by the government, it was established in 20 through the merger of the National Life Finance Corporation, the Agriculture, Forestry and Fisheries Finance Corporation, the Small and Medium Enterprise Finance Corporation, and the Japan Bank for International Cooperation. Loans can be obtained for apartment management as a business for the purpose of "supporting financing for the general public, small and medium-sized enterprises, and agriculture, forestry and fisheries companies."It is characterized by low interest rates and preferential treatment for young and elderly people.
Real estate brokerage loan
Each real estate investment company has a partner financial institution, and may act as an agent for the investor's loan procedure.In that case, the conditions may change depending on the evaluation of the real estate company.
What is the difference between a home loan and a real estate investment loan?
Mortgages have lower interest rates than real estate investment loans.With variable interest rates, mortgage interest rates range from 0.4% to 3% and real estate investment loans range from 2% to 5%.If you work for a listed company or have a stable salary, such as a civil servant, it is easier to get a mortgage because there is a low possibility that your repayments will be delayed.
On the other hand, in the case of real estate investment loans, there are uncertainties that are unrelated to the person's work status, such as the risk of vacancy, so the screening standards are strict.
There is a difference in the age limit and loan amount between housing loans and real estate investment loans.In the case of housing loans, the upper limit is 65 to 70 years old in consideration of retirement age.In real estate investment loans, if you have collateral and the property you plan to purchase is stable, you may be able to get a loan even if you are old.
In the case of a housing loan, the loan amount is 5 to 7 times the annual income, but in the case of a real estate investment loan, the repayment source is rental income, so it is possible to borrow 10 times or more of the annual income.
Related article:Can I buy an investment property with a mortgage? Points to keep in mind about real estate investment loans
What are the market rates for variable interest rates and fixed interest rates for real estate investment loans?
Interest rates have a big impact on your monthly repayments.There are variable interest rates and fixed interest rates, each with its own characteristics.
Floating rate type
The interest rate will be reviewed during the repayment period.Even if it is low at first, it cannot be denied that it will rise later.If interest rates go down, your repayments will go down, and if interest rates rise, your repayments will go up.The interest rate is reviewed every six months, so check it regularly and prepare for renewal after 5 years.
In addition, the maximum repayment amount after renewal is 125%, and if it rises by 140%, 15% of the difference will be carried over to the next time.If you have other sources of income and have funds to spare, even if interest rates rise, you can reduce the impact by allocating from there and enjoy the benefits of floating interest rates.
fixed interest rate
There is a fixed interest rate period selection type and a fixed interest rate type for the entire period.If you choose a term type, you can choose a term such as 3 years, 5 years, or 10 years, and the interest rate will not change during that period.After the period ends, select the period again.As the name suggests, the interest rate remains the same for the entire term.
The fixed interest rate has the advantage of making it easier to plan your income and expenditures because the repayment amount does not change, but since the interest rate is set higher than the floating interest rate, the repayment amount will be higher than the floating interest rate if interest rates do not rise in the future.
What are the conditions that make it easy to pass the review of real estate investment loans?
There are three big things: having a high credit rating, having a down payment, and being a property with a high rate of return.If you work for a company or organization with high social credibility, such as a listed company or a government office, you will be more likely to be recognized as having the ability to pay.
Also, if you have a lot of assets and can easily pay the down payment, the same is true.We also check the profitability of the property itself.Even if the yield is high, if the asset value is low, such as the age of the building is too old, the examination may not pass.
Related article:Before you start investing in real estate, what you should know about loan screening criteria and how long is the screening period?
Flow up to borrowing a real estate investment loan
The flow of loan borrowing is roughly as follows.
- interview appointment
- Bring the required documents for an interview and apply
- Examination start
- Notice of Loan Decision
- Loan procedure
- Loan execution
- Property purchase
As a flow when taking an examination by an individual, first, after selecting a property, make an appointment for an interview with the person in charge of the financial institution.I don't think it's rare to be turned away at the door if you visit suddenly, but if the person in charge doesn't have the materials to prepare in a limited amount of time, it won't leave a good impression.If you make an appointment for an interview in advance, the financial institution can decide on a person in charge and prepare materials in advance.
Next, bring the necessary documents to the interview, but at this time, prepare identity verification, income verification, other loan amount verification, and details of the property under consideration.
Identity verification, income verification, past performance, etc.
Identification cards such as driver's licenses and health insurance cards, tax withholding slips, tax returns, loan repayment schedules such as mortgages, past transaction examples, etc.
Detailed information on the property under consideration
Certified copy of register, property overview, cash flow trial balance, property acquisition cost estimate, property tax assessment certificate, official map, residential map, sales drawing, building drawing, property photo, etc.
However, you may suddenly feel that it is difficult to make an appointment with a stranger.In that case, it is smoother to go through a real estate company.If there is a real estate company affiliated with the financial institution, the interest rate will be lower than general as an affiliated loan, and the loan decision may be made earlier.Also, since the person in charge of the real estate company will follow up, it is especially smooth when you start real estate investment for the first time.
Related article:What is an advantageous business plan to make a loan in real estate investment?From creation method to agency request
Real estate investment loan risk
Vacancy risk is the biggest risk associated with real estate investment.Repayment may become difficult if the vacancy continues for a long time.Also, depending on the timing of the sale, it may fall below the amount of the remaining debt, and there is a risk that you will not be able to sell it even if you want to if you cannot remove the mortgage.It is important to avoid risks as much as possible by planning ahead.
Related article:The most scary vacancy risk in real estate investment.What are the measures and characteristics of properties that tend to be vacant?
Summary
In this article, we will introduce you to the bank loan that you should know about real estate investment.
At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.
