[Financial Essay] Must-Know Tips Before Getting a Jeonse Loan

[Asia Economy Reporter Kim Min-young] If you have managed to find a house and signed a jeonse (long-term lease) contract amid the jeonse crisis, it is time to prepare the jeonse deposit. It would be ideal to secure the deposit without a loan, but if you inevitably have to turn to a bank, you should first look into policy-based jeonse deposit loan products. Although the loan limit is lower than general jeonse loans, the interest rates are much cheaper. Here are jeonse loan products based on income criteria.

If you are a worker with a pre-tax annual salary of 35 million KRW or less working at a small or medium-sized enterprise (based on a married single-income household or single household head), it is most advantageous in terms of interest rates to use the ‘Small and Medium Enterprise Youth Jeonse Deposit Loan’ funded by the Housing and Urban Guarantee Corporation (HUG) through the Housing and Urban Fund. For dual-income households, the combined annual income of the couple must be 50 million KRW or less. There is also an asset criterion: net asset value must be 288 million KRW or less. Additionally, you must be a household head without homeownership. Prospective household heads can also apply for the loan.

This loan is available to employees of small and medium-sized enterprises or mid-sized companies, or youths aged 19 to 34 who are receiving youth startup support from the Small and Medium Business Corporation, Credit Guarantee Fund, or Technology Guarantee Fund. The age limit can be extended up to 39 years depending on the period of mandatory military service.

The loan interest rate is low, fixed at 1.2% per annum. The loan limit is up to 100 million KRW. The loan period is initially 2 years, with up to 4 extensions, allowing a maximum of 10 years.

The eligible housing must be a rental property with an exclusive area of 85㎡ or less (including residential officetels), and the rental deposit must be 200 million KRW or less. Currently, this product is offered by Shinhan, KB Kookmin, Woori, NH Nonghyup, and IBK Industrial Bank of Korea.

There is also a couple-exclusive ‘Butimok Jeonse Fund Loan.’ The combined total income of the applicant and spouse must be 50 million KRW or less. Depending on conditions such as newlyweds or families with two children, the annual income limit can be up to 60 million KRW.

For general households and newlywed households, the rental deposit must be 300 million KRW or less in the metropolitan area, or 200 million KRW or less outside the metropolitan area. For families with two or more children, the limit is 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 jeonse loan exclusively for newlyweds. The annual income limit is 60 million KRW or less, with a loan limit of 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.

If you need a larger deposit, you can use the ‘Large Sum Jeonse Loan’ guaranteed by the Korea Housing Finance Corporation. The loan limit reaches 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 rental 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 from the Housing Finance Corporation, which sets a lien or assigns the claim on the rental deposit refund bond. Before loan disbursement, the landlord is contacted by phone or mail to confirm the lease, but landlords may find this bothersome or reject it, so it is advisable to inform the landlord beforehand.

This year, Seoul City launched the ‘Newlywed Couple Rental Deposit Interest Support Project,’ which supports couples with a combined income of up to 97 million KRW. This program lends up to 200 million KRW within 90% of the rental deposit. The interest rate is 2.64%, but Seoul City provides interest support: 3.0 percentage points for combined annual income under 20 million KRW, 0.9 percentage points for income between 80 million and 97 million KRW, and 0.2 percentage points for prospective newlyweds. The benefit can be extended every 2 years up to a maximum of 10 years, but interest support may decrease upon extension depending on income, and extensions are not allowed if income exceeds 97 million KRW. This product is available at 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. Interest can be reduced based on preferential conditions such as salary transfer, deposit product subscription, and credit card usage. KakaoBank offers the lowest interest rates.

There is also a guarantee issuance product by SGI Seoul Guarantee Insurance that allows borrowing up to 500 million KRW. You can borrow if you have a rental deposit contract signed through a real estate agency and a receipt for a down payment of at least 5% of the deposit. Loans are not available for private transactions between individuals. Additionally, homeowners 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. Since this product lends more money, the interest rate is higher at 2.96% to 3.66% compared to other products.