[Practical Finance] The Three Gates of Policy Mortgages for the Dream of Owning a Home

① Newlywed couples with annual income under 85 million KRW
Up to 30 years fixed-rate 'Bogeumjari Loan'

② Lowest interest rate 'Didimdol Loan' for first-time homebuyers
Unmarried household heads up to 150 million KRW

③ 'Qualified Loan' without income or non-homeowner conditions
2.8~3% at SC First Bank, Suhyup Bank, etc.

[Asia Economy Reporter Kim Min-young] Can you succeed in buying your own home by saving diligently? According to KB Kookmin Bank Live On on the 29th, as of the first quarter, the 'KB Apart PIR (Price-to-Income Ratio)' in Seoul was 11.7. This means you need to save your entire annual salary for 11.7 years without spending a single penny to buy one apartment in Seoul.

This indicator is compiled based on households that actually took out mortgage loans from Kookmin Bank to purchase apartments. The housing price is the median price of apartments surveyed at the time of mortgage loan execution, and the annual income is the median income of the borrowing household.

However, in reality, housing prices tend to rise during the decades it takes to save money. At minimum, house prices increase at the inflation rate, and often exceed that.

Borrowing money from banks at reasonable interest rates can be a financial strategy to achieve the Korean dream of owning a home. Especially for ordinary buyers, the most realistic way to purchase a home is to combine their own funds with loans. Of course, it is essential to borrow only within a level where debt can be managed based on income and assets. Policy mortgage products allow borrowing beyond the Loan-to-Value (LTV) limits in regulated areas, which can be useful for office workers living in Seoul or the metropolitan area.

Apartment. Asia Economy DB

◆Does the government lend money when buying a home? = To be precise, it is not the government but the Korea Housing Finance Corporation (KHFC), a financial public enterprise, that assists with the shortfall when buying a home. The interest rates are also low.

The Bogeumjari Loan sold by KHFC is a loan with a fixed interest rate for up to 30 years, suitable for customers who want to avoid the risk of future interest rate fluctuations.

Borrowers must be either a couple (or single if unmarried) who are either without a home or own only one home. Temporary ownership of two homes is allowed only for purchase purposes, and the disposal period for existing homes other than the collateral property is one year in speculative or overheated speculation areas, and two years in other areas.

Income criteria allow applications if the combined annual income of the couple (or individual if unmarried) is 70 million KRW or less. More lenient criteria apply to newlyweds, who can apply if their combined annual income is 85 million KRW or less. The newlywed status is defined as within 7 years from the marriage registration date. Income criteria vary depending on the number of children. As of this month, the interest rate is fixed at 2.45~2.55% annually for a 30-year term.

Only apartments, row houses, multi-family houses, and detached houses registered as residential properties on the real estate registry are eligible. The housing price must be within 600 million KRW as of the loan approval date.

Even if the house is located in a regulated area, speculative area, or overheated speculation district, the LTV for actual buyers is applied up to 70%, with a basic 60%. The Bogeumjari Loan actual buyer requirement is a combined annual income of 70 million KRW or less and no home ownership. To receive the 70% LTV, the house to be purchased must be priced at 500 million KRW or less.

There is also the Didimdol Loan. Although the income criteria are stricter, it offers lower interest rates and allows choosing between fixed interest rates and variable interest rates that adjust every 5 years.

Applicants must have a combined annual income of 60 million KRW and be the head of a household without a home. However, for first-time buyers, newlyweds, or households with two or more children, the income limit is 70 million KRW or less. Net assets must not exceed 391 million KRW combined for the couple. Loan interest rates range from 1.95% to 2.70%. Newlywed households purchasing their first home can borrow at even lower rates depending on income: 1.90% (annual income 20 million KRW or less) to 2.40% (40 million to 70 million KRW). This loan is only available for purchasing homes priced at 500 million KRW or less.

The LTV can be applied up to 70%, allowing borrowing up to 200 million KRW, with newlywed households eligible for up to 220 million KRW, households with two or more children up to 260 million KRW, and single heads of household aged 30 or older up to 150 million KRW. Loan terms can be chosen from 10, 15, 20, or 30 years.

◆Products without income restrictions = The Qualified Loan sold by KHFC is not related to income and is available to one-home owners as well. The loan limit is up to 500 million KRW, and interest rates vary by bank. For the basic product, Jeju Bank offers the lowest rate at 2.78% for a 30-year term, followed by SC First Bank at 2.81%, and Sh Suhyup Bank at 3.01%. However, Shinhan Bank, Hana Bank, and Kookmin Bank do not offer this product. The collateral housing price limit is higher at 900 million KRW, so the loan limit is exhausted quickly compared to other products.

Buying a home by taking out a general mortgage loan from banks regardless of income is also an option. The Bank of Korea's base interest rate has dropped to a historic low, keeping commercial bank loan interest rates low. Mortgage loan interest rates at Shinhan, Kookmin, Hana, and Woori banks range from 2.21% to 3.96%.