Can't borrow even if you have the income and ability to repay the loan? 4 Patterns that prevent you from getting a mortgage on an existing home purchase
Rising land prices and building costs have caused the price of new properties to rise. As a result, used homes are attracting attention. Renovation properties", which renovated used homes to be more stylish and functional than new homes, have become popular, and the number of people considering the purchase of used homes is increasing.
Incidentally, renovation is a type of reform, which means to renovate an existing home to have better performance than when it was new. Nowadays, there are mortgage loans that can be borrowed together with the cost of renovation, so if you are thinking of buying and renovating an existing house, if you do the renovation at the same time of purchase, you can borrow a mortgage to combine the cost of purchase and renovation of the house.
Many people know that in order to take out a mortgage loan, you need to have a certain income and the ability to repay the loan. But did you know that there are cases where you can't get a mortgage even if you have the income and the ability to repay the loan? That's what we call an "Existing Home with No Mortgage Available".
Why can't I get a mortgage?
When financial institutions provide mortgage loans, they screen the "person" and "property". The "person" screening is based on the applicant's income, place of employment, and whether or not he or she has any other loans, and whether or not he or she will be able to repay the mortgage without delay. On the other hand, the screening for "property" is based on whether the property is worth lending money to. Mortgages are lent against the property (land or building) that the loan recipient is purchasing. Simply put, if the borrower is unable to repay the loan, the financial institution will sell the property and use the proceeds to repay the loan.
However, in some cases, financial institutions do not recognize the value of the collateral and will not lend the mortgage even if the loan applicant's ability to repay the loan. A "financial institution does not recognize the value of the collateral" means that even if you try to sell it, a buyer cannot be found, or even if you can sell it, it was judged that you cannot collect the loan. If you consider a house to be an asset, you should not buy a property that you cannot get a mortgage loan for. So, what kind of property is such a mortgage loan not available?
<Case 1> Leasehold houses and houses with fixed term leases
A leasehold is simply "the right to rent someone else's land and build your own building on that land". A fixed term land lease is a tenancy for a fixed period of time (generally 50 years or more), and the principle is that after the term expires, the building is demolished and the land is cleared and returned to the owner. Although it is necessary to pay the deposit and the monthly ground rent at the time of a contract, since the land rent is not included, it seems to be a case where it can be purchased at about 40-50% of a general house. However, it can be difficult to get a mortgage loan because the ownership of the land does not belong to the person who bought it and financial institutions cannot use the land as collateral. Some financial institutions make it clear that they will not handle leasehold or fixed-term leasehold homes. However, it is common for new condominiums for sale to have an affiliated loan, so you can get a mortgage.
<Case 2> Housing built in an urbanization control area
The house can be built in the area that corresponds to the "urbanization area" defined by the city planning law.
Although "the urbanization control area" has a name similar to this, it is the area where urbanization must be controlled, that is, urbanization must be suppressed, and a general house cannot be built in principle. In fact, some people have built their houses and are living in them even before they were set up in the urbanization control area. The house built in those urbanization control areas can be purchased, but the borrowing of the mortgage becomes difficult. In addition, the relief measure "the existing housing site" which permits building exceptionally, such as the person who lived before it is set up in an urbanization control area, also exists.
<Case 3> Reserved land for land readjustment projects
Land readjustment projects are "projects to improve public facilities such as roads, parks and rivers, and to demarcate land in order to improve the use of residential land. In some cases, land owners have to bear the costs of land readjustment projects, but in such cases, the land owners do not bear the costs in monetary terms, but rather the land owners within the area gradually pool their land to establish a reservation, which is then disposed of and used to cover the project costs. Some financial institutions do not offer mortgages for the purchase of this reservation land for the land rezoning project.
However, some financial institutions do sell "reservation loans" specifically for reservation land, so please consult with your financial institution on an individual basis.
<Case 4> Property that cannot be reconstructed
A property that is designated as non-reconstructable cannot be "rebuilt". There are several reasons for being designated as non-reconstructable, but the most common is a case of violating the "duty of access".
So, what is the duty of accessibility?
The Building Standards Act basically dictates that the land on which a construction site is to be built must abut a road that is at least 4 meters wide and at least 2 meters long. When this regulation is established, the building that has already been built cannot be demolished because "it is in violation", so the building remains as it is, but "rebuilding" is not allowed, which is a property that cannot be rebuilt. If the streets are narrow, the possibility of the fire spreading increases, so it is also meant to strengthen the fire prevention system. In some old streets, buildings are crowded at both ends of narrow streets, or houses are built in alleys and corridors from the street.
The above are the main, when buying real estate, the mortgage is not available, and even if it is available, the collateral valuation is low.
When buying the real estate which exists in these cases, there are cases where the method of payment is limited to cash. Let's confirm whether it does not fall under the above beforehand, and try to make a smooth transaction.
There are many properties that cannot be rebuilt in Kyoto. It's a term we don't often hear in other cities, but we'll explain the non-rebuildability and talk about the advantages and disadvantages of each.
A "non-rebuilding" property is literally a property that cannot be rebuilt in the future once the building is demolished. For example, if the width of the access road (the part where the road meets the site) is less than 2 meters, it is not possible to re-build. It is also not possible to re-build if it only abuts a road that is not recognized as a road under the Building Standards Act. This is because it would not meet the "duty of accessibility" set forth in Article 43 of the Building Standards Act. If it does not abut the road, for example, in the event of a fire, the fire engines may not be able to do enough to put out the fire. The same is true when an ambulance is called. In other words, this law is about ensuring the safety of the residents. On the other hand, if it is a road under the Building Standards Act, it means that the private road also fulfills the duty of connecting. A non-rebuildable property is a land that is handicapped, which means that it can be remodeled but cannot be rebuilt. As a result, prices are often set low and you may find it advantageous. This is clearly stated in the real estate advertisement for non-rebuildable properties, so be sure to check the content of the advertisement carefully and be careful not to say "I could buy the land cheaply, but could not build it!".
Advantages of non-rebuildable property
1: Price is low
The inability to reconstruct means that the value of the land and the value of the property are very low, so you can buy much cheaper than comparable properties in the neighboring area.
2: Remodeling and renovation are possible
It cannot be rebuilt, but large-scale reforms and renovations are possible.
3: Property tax is cheap
Due to the low asset value, the property tax valuation is also set low. Therefore, the property tax, city planning tax, inheritance tax, and gift tax calculated based on the property tax valuation are also cheaper.
Disadvantages of non-rebuildable properties
1: Cannot be rebuilt
After all, this disadvantage is the biggest.
For example, if those properties destroyed by an earthquake, you can no longer build buildings on that land.
2: Cannot use mortgage
The collateral value is also very low and you cannot buy it using a mortgage. In other words, you have to make a one-time payment in cash. Note that some financial institutions may be able to use the loan, but interest rates will be considerably high.
3: Difficult to sell
Due to restrictions, it may be difficult for buyers to find it even if they are put on sale. In addition, because the mortgage is not available, it is difficult to sell because it is limited to buyers who can buy cash.
Will non-rebuildable property be covered by fire insurance?
There is no reason why you cannot take out fire insurance because it cannot be rebuilt. Basically, if you have a building, you can get fire insurance. In addition, premiums will not be expensive because they cannot be rebuilt. Because the purpose of fire insurance is not just for rebuilding. You will also be paid to cover expenses such as repairs.
If it is completely destroyed by an earthquake or the like, there is a risk that it will not be possible to rebuild even if there is an insurance premium. However, depending on the degree of damage, it may be possible to fully repair it with insurance money, so it is important to be prepared in case of emergency.
Let's say you buy a property for 10 million yen and have 10 million yen in fire insurance and 5 million yen in earthquake insurance. If your home is completely destroyed due to an earthquake instead of a fire, you will receive an insurance benefit of 5 million yen.
In this way, non-rebuildable properties have different characteristics from ordinary properties, so it is necessary to know in advance when considering purchasing.
Arrows International Realty Corp.