[Practical Finance] The Sweet Dream of Newlyweds Hurt by Jeonse Prices, 'Comfort' through Jeonse Loans

For Dual-Income Junggi People Earning Under 50 Million KRW
'Junggi Employment Youth Jeonse Deposit Loan'

[Asia Economy Reporter Minyoung Kim] Young adults and newlyweds struggling with the shortage of jeonse (long-term lease) listings first look into bank loans after finding a house with difficulty. This is because their saved money alone cannot cover the jeonse deposit. In such cases, they should first check out policy jeonse loan products that are like "rain in a drought." One of the benefits of the ultra-low interest rate era is that you can get jeonse loans at affordable rates. Here is a collection of jeonse loan products for young adults and newlyweds.

First, let's look at policy jeonse loans available based on income criteria. If you are a worker earning less than 35 million KRW annually at a small or medium-sized enterprise (based on a married single-income household or single household head), you can use the "SME Employment Youth Jeonse Deposit Loan" funded by the Housing and Urban Guarantee Corporation (HUG) and the Housing and Urban Fund. For dual-income households, the combined annual income of the couple must be 50 million KRW or less. The asset criterion requires a net asset value of 288 million KRW or less. You must be a household head without home ownership, and prospective household heads can also apply for the loan.

Since this product is for the youth, the loan interest rate is low. It is fixed at 1.2% per annum. The loan limit is up to 100 million KRW, which is somewhat modest, but the loan period is initially 2 years with 4 extensions, allowing up to 10 years in total. Eligible housing includes rental properties with a lease-exclusive area of 85㎡ or less (including residential officetels), and the lease deposit must be 200 million KRW or less. Currently, Shinhan, KB Kookmin, Woori, NH Nonghyup, and IBK Industrial Bank offer this product.

There is also the "Butimok Jeonse Fund Loan," which can be obtained under similar conditions regardless of the company type. This jeonse loan is exclusively for couples. The combined total income of the applicant and spouse must be 50 million KRW or less, but for newlyweds, families with two children, and other conditions, the annual income limit is extended to 60 million KRW.

For general households and newlywed households, the lease deposit must be 300 million KRW or less in the metropolitan area and 200 million KRW or less outside the metropolitan area. For families with two or more children, the limits are 400 million KRW in the metropolitan area and 300 million KRW outside. The loan limit is up to 120 million KRW in the metropolitan area and 80 million KRW outside. Interest rates range from 1.8% to 2.4%. There is also a "Youth-Only Butimok Loan" with a loan limit of 70 million KRW or less and interest rates between 1.5% and 2.1%, depending on income.

There is also a jeonse loan exclusively for newlyweds. The annual income limit is the same at 60 million KRW or less, but the loan limit is up to 200 million KRW (160 million KRW outside the metropolitan area), and interest rates range from 1.2% to 2.1%, depending on income and deposit amount.

The Korea Housing Finance Corporation (KHFC) guarantees a jeonse loan product with a limit of up to 266.6 million KRW. In provincial areas, the maximum loan is 177.7 million KRW. However, this product also requires a combined annual income of 60 million KRW or less for couples, and the lease deposit must be 300 million KRW or less in the metropolitan area and 200 million KRW or less in provincial areas to apply. Interest rates are around 2.25% to 2.85%.

This product is backed by a 90% guarantee certificate issued by the Housing Finance Corporation, which establishes a pledge or assignment of the lease deposit return claim. Before loan disbursement, the Housing Finance Corporation or the bank contacts the landlord by phone or mail to verify the lease. A bank official said, "While landlords have no right to refuse this procedure, they may find it bothersome and might refuse to contract with tenants seeking such loans."

Products Available for Income up to 97 Million KRW

There are also policy products available for incomes up to 97 million KRW. One such product is the "Newlywed Jeonse Deposit Interest Support Project," which Seoul City dramatically relaxed income criteria for this year. This product allows borrowing up to 200 million KRW within 90% of the lease deposit.

As of the 20th, the interest rate is 2.64%, but the city provides interest support: 3.0 percentage points for combined annual income below 20 million KRW, 0.9 percentage points for income between 80 million and 97 million KRW, and 0.2 percentage points for prospective newlyweds. Thanks to these interest benefits, borrowers can get loans at a "minimum 1.0% interest rate." The loan can be extended every 2 years for up to 10 years, but interest benefits may decrease upon extension depending on income. The handling banks are Kookmin Bank, Hana Bank, and Shinhan Bank.

There are also products without income criteria. The "Bank Fund Agreement Guarantee Product," jointly offered by the Housing Finance Corporation and major banks, is 90% guaranteed by the Housing Finance Corporation, with the remaining 10% treated as a bank unsecured loan. The loan limit is 222 million KRW, and interest rates are in the high 3% range. Depending on preferential conditions such as salary transfer, deposit product subscription, and credit card usage, interest can be reduced by up to 1.0 percentage point. This product is also available at KakaoBank, where interest rates are lower than at major banks.

There is also the "SGI Seoul Guarantee Insurance Guarantee Issuance Product," which allows borrowing up to 500 million KRW. You can borrow if you have a lease contract signed through a real estate agency and a contract deposit receipt of at least 5% of the lease deposit. Eligible borrowers include employees who have worked at their current job for more than 3 months or self-employed individuals who can issue a certificate of earned income.

However, homeowners with one house can only borrow up to 300 million KRW, and if you own an apartment valued at 900 million KRW or more or purchase an apartment exceeding 300 million KRW in a speculative or overheated speculation district after applying for the loan, the loan will be recalled. Interest rates range from 2.96% to 3.66%, which is somewhat high given the large loan limit.