Sunday, 21 October 2018

The Property Market & Obtaining a Mortgage in Israel

Hebrew:     משכנתאות ושוק הנדל"ן

house keys

The mortgage arena in Israel can be challenging. Following is a brief overview of what you can expect.

Applying for a mortgage in Israel

It is strongly advised to get approved for a mortgage before signing a purchase contract. As opposed to other countries where a home purchase can be “conditional upon financing”, a purchase contract for a property in Israel is final once the purchase contract is signed.

It is also important to understand that a bank will approve a borrower based on a percentage of the appraised value of the property. Due to the high prices in many English speaking communities, appraisers can often undervalue properties in these communities. For this reason, it is often recommended to have a property appraised before signing a purchase contract in order to determine exactly how much money the mortgage bank is willing to lend.

Qualifying for a mortgage

Lending institutions in Israel generally approve mortgage applications based on a borrower’s income. A borrower’s assets can contribute to the strength of the application, but the income is a much more relevant factor in approving the mortgage. Borrowers who work in Israel need to provide records of pay slips. Foreign borrowers generally need to provide annual tax statements.

Cosigners and Guarantors (in Israel or abroad) for the mortgage can also be used in the event that the borrower does not have sufficient income.

Mortgage options

There are a number of mortgages options available. Mortgage options are tailored to match a number of factors, including: The currency of your income, place of residency, financial goals, economic outlook and economic standing. Mortgages are available in a number of currencies and are generally available up to a maximum of 30 years.

Mortgage hidden costs

Comparing and choosing the best mortgage option can be challenging. Many mortgages have hidden costs which can significantly increase the cost of the mortgage. An independent mortgage professional can advise you on the most economical option.

Monthly repayments

Following is a table that shows the monthly repayments per 100,000 NIS of mortgage:

      Rate      
      10 Years      
      15 Years      
      20 Years      
      30 Years      
8%  1213  956  836  734
6%  1110  844  716  600
4%  1012  740  606  477
3% 966 691 555 422

Fixed rate or variable interest rate

Most mortgages offered in Israel are variable and are linked to either the Israeli Prime rate, the LIBOR rate, or the Israeli inflation index. Only recently a few banks have begun to offer truly fixed rate mortgages for a maximum of 30 years. Borrowers need to be cautious in insuring that there are no hidden costs or “price floors” in any of these mortgages.

Prepayment penalties

Some mortgage options in Israel have pre-payment penalties in the event that the borrower wants to either prepay the mortgage or sell the property. It is important to clarify with the relevant lending institution if, when and how much prepayment penalties can be.

How much can I borrow?

Israeli lending institutions will generally lend a maximum of 75% of the price of a property directly from a bank. It is possible to borrow a maximum of 90% with mortgage insurance.

Olim Hadashim (New immigrants), Ktinim Hozrim (Returning minors) and Ezrachim Olim (Israeli citizens born abroad)

Olim hadashim are entitled to a fixed rate mortgage up to 15 years after their Aliyah. The mortgage can be taken for a period of between 20 - 28 years. Because the mortgage for new immigrants is rather small, you may need additional sources of funding.

Addition qualifying criteria

There are various other criteria that need to be met in order to qualify for this mortgage; 

  • This purchase needs to be your first apartment purchase in Israel.  This applies to both of the spouses.
  • You need to be in possession of a Teudat Zakaut issued by a mortgage bank. (The Teudat Zakaut is document issued by Israel's Ministry of Housing and Ministry of Immigrant Absorption - Misrad HaKlitah).
  • If you have not yet made Aliyah but have already purchased an apartment , you need to make Aliyah within one year from the purchase date.

Foreigners who wish to purchase property in Israel

The following will also be taken into consideration; collateral, your IDF service, the number of years you have been living in Israel, your age, family status, family size - children, dependents etc.ers who wish to purchase property in Israel

Mortgages are available to foreigners and can be easily arranged without ever having to come to Israel. These mortgage can be linked to a foreign currency so that individuals can hold their mortgage in the same currency as the income they are earning.

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