This paper presents an unsupervised method for developing a character-based n-gram classifier that identifies loanwords or transliterated foreign words in Korean text. The classifier is trained on an unlabeled corpus using the Expectation Maximization algorithm, building on seed words extracted from the corpus. Words with high token frequency serve as native seed words. Words with seeming traces of vowel insertion to repair consonant clusters serve as foreign seed words. What counts as a trace of insertion is determined using phoneme co-occurrence statistics in conjunction with ideas and findings in phonology. Experiments show that the method can produce an unsupervised classifier that performs at a level comparable to that of a supervised classifier. In a cross-validation experiment using a corpus of about 9.2 million words and a lexicon of about 71,000 words, mean F-scores of the best unsupervised classifier and the corresponding supervised classifier were 94.77 and 96.67 %, respectively. Experiments also suggest that the method can be readily applied to other languages with similar phonotactics such as Japanese.