How do banks assess my repayment ability when applying for a mortgage? What is the typical multiple of annual income for the maximum loan amount?

Hello! Judging by your question, you're probably considering the big life decision of buying property in Japan? Congratulations! Securing a mortgage is indeed a crucial step. Let me break down in plain terms how those bank "number crunchers" calculate how much you can borrow.

How Do Banks Assess My Repayment Ability?

Don't overcomplicate banks. They really care about one thing: Are you stable? If they lend you money, can you reliably pay it back over the next few decades? They piece together your "reliability profile" from several angles, like a puzzle.

1. The Core Metric: Debt Service Ratio (返済負担率)

This is a technical term, but simply put: What percentage of your annual income goes towards paying off all your loans (including this new mortgage)?

Calculation Formula: (Annual total repayment ÷ Pre-tax annual income) × 100%
The Bank's Red Line: Generally, banks want this ratio kept within 30% ~ 35%. If your income is very high (e.g., over ¥8 million), it might stretch to 40%. Conversely, with a lower income, banks might tighten the standard to 25%.
Crucial Note: "Annual total repayment" includes all your debts! Not just the mortgage. If you have car loans, credit card installments, or other consumer loans, the bank adds them all up. Many people see their borrowing capacity significantly reduced because they overlook this.

For example: Your annual income is ¥5 million, and the bank's standard is 30%. Your maximum annual repayment amount is then ¥5 million × 30% = ¥1.5 million. That's ¥125,000 per month. The bank will then work backwards from this monthly repayment cap to determine the maximum amount they can lend you.

2. Your Personal Background: Stability is Paramount

Beyond cold numbers, banks place high importance on your "soft skills," which determine the stability of your income.

Employer (勤務先): Where do you work? Is it a large company (listed company), government, or a "secure job" like doctor or lawyer? Company size and stability are major pluses. Small companies or recent startups make banks more cautious.
Job Tenure (勤続年数): How long have you been with your current employer? Typically, continuous employment for over 3 years is considered stable. If you just changed jobs, even with a pay raise, the bank might deem your income unstable and ask you to wait.
Employment Status (雇用形態): Full-time Employee (正社员) > Contract/Dispatched Employee (契約社員/派遣社員) > Self-employed/Part-time worker (自営業/アルバイト). Full-time employees have the most stable income and find loans easiest. If you're self-employed (自營業主), banks will require your tax returns for the past three years to assess your business's profitability and stability.
Credit History (個人信用情報): Have you ever defaulted on credit cards, phone bills, or utilities? Any late payments? Banks will check your credit report (CIC, JICC, etc.). Any blemish, even a minor one from long ago, can lead to outright rejection. Maintaining a good credit record is vital!
Health Status (健康状態): Applying for a mortgage in Japan almost always requires mandatory enrollment in "Group Credit Life Insurance" (団体信用生命保険 or 団信). This insurance means if you die or become critically ill, the insurer pays off the remaining loan. If you have a significant medical history, you might fail the insurance screening, and the mortgage will fall through.

3. Your Purchase Plan: How Serious Are You?

Down Payment (頭金): How much down payment do you have? While many banks advertise "0 down payment," having 20% or more is a definite plus in the bank's eyes. This reduces their risk and demonstrates your saving ability and commitment to buying.
Property Value (物件の担保価値): The property itself is the bank's collateral. The bank will appraise its value. If the property is too old, in a poor location, or has illegal structures, it will affect the loan amount.

What's the Maximum Loan Amount Relative to Annual Income?

This is probably the most common question. Common wisdom suggests: The loan amount is roughly 7~8 times your annual income.

This has some basis and can serve as a very rough estimate. For example, with a ¥5 million income, you might borrow around ¥35-40 million.

BUT! Please remember, this is just a rule of thumb, NOT the bank's approval rule!

The real deciding factors are the "Debt Service Ratio" we discussed above. The so-called "income multiple" is merely a result calculated based on the debt service ratio, loan term, and interest rate.

Why You Shouldn't Rely Solely on the "Income Multiple"?

Because two key variables affect the final outcome:

Loan Interest Rate (金利): A higher interest rate means higher monthly payments. With a fixed monthly repayment cap, the total amount you can borrow decreases.
The Bank's "Assessment Rate" (審査金利): This is the trickiest part! The super-low rates (like 0.x%) you see advertised online are "preferential rates" for customers. Internally, when assessing your application, banks use a much higher "assessment rate" (usually 3%~4%) to calculate your debt service ratio. This is a stress test to ensure you can still repay even if interest rates rise in the future.

An example will make it clear:

Your Situation: Annual income ¥5 million, no other debts, wants a 35-year loan.
Bank A: Uses a 3% assessment rate, max debt service ratio 30%.
- Your max monthly repayment is ¥125,000.
- At 3% interest, repaying ¥125,000/month allows borrowing approx. ¥31.6 million. (≈ 6.3 times income)
Bank B: Uses a 3.5% assessment rate, max debt service ratio 35%.
- Your max monthly repayment is ¥145,000.
- At 3.5% interest, repaying ¥145,000/month allows borrowing approx. ¥34.5 million. (≈ 6.9 times income)

See? The same person, different banks, different assessment standards – the resulting "multiple" is completely different. So, stop fixating on "how many times my income can I borrow?" There's no standard answer.

To Summarize

Banks assess you based on your Debt Service Ratio and personal background stability.
The loan amount as a multiple of income is just an outcome, not the approval criterion. It generally floats between 6 to 8 times, but don't take it too literally.
To improve your chances of approval and get a higher loan amount, focus on increasing your income, maintaining excellent credit, saving a larger down payment, and holding a stable job at a reputable company.

Hope this information helps! Buying property is a major step. Talk to several banks, get pre-approvals (仮審査), and see what they can offer you – that will give you a clear picture. Good luck!