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 considered final once the purchase contract is signed.
It is also important to note that a bank will approve a borrower based on a percentage of the appraised value of a property. Appraisers will often undervalue properties. 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. 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.
There are a number of mortgages options available. Mortgages can be in Shekels, US Dollars, as well as a number of other currencies. Within each currency, there are a number of mortgage options. The choice of your mortgage should be carefully customized to match a number of factors, including: The currency of your income, budgetary constraints, and risk adversity. Mortgages are generally available up to a maximum of 30 years.
Hidden Costs in a Mortgage
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 and help you avoid the hidden traps of the Israeli mortgage system.
Fixed Rate or Variable Rate?
There are a wide range of fixed and variable options, each with its own advantages and disadvantages. Borrowers need to be cautious to understand these terms as they have different definitions than mortgages abroad.
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 before the mortgage is paid off. Generally, variable rate mortgages have no pre-payment penalty. Fixed rate mortgages will generally have a smaller penalty if the lock-in period of the interest rate is shorter.
How much can I borrow?
Israeli lending institutions will generally lend a maximum of 75% of the price of a property if it is the buyer’s first property purchase. The banks will lend 70% of the price of a property if it is not the buyer’s first property and if the buyer does not own any other properties. The banks will lend 50% of the price of a property for second (or investment) properties. Borrowers that do not have a teudat zehut (Israeli ID) are also limited to 50% financing.
How much will I pay per month?
The following table shows how much a borrower will pay monthly for a 1,000,000 NIS mortgage over a 20, 25 and 30 year period.
|Monthly Mortgage Payments for a 1,000,000 NIS Mortgage|
|20 years||5,800 NIS||6,600 NIS||7,456 NIS|
|25 years||5,006 NIS||5,846 NIS||6,752 NIS|
|30 years||4,490 NIS||5,368 NIS||6,321 NIS|