Taking a Mortgage in Israel

The most commonly question asked by people seeking a mortgage in Israel is “how much money can I borrow?”. The response to this question is twofold and can best be answered by asking two further questions:

1. What is the value of the property you are buying?

Israeli first-time buyers can get up to 75% of the property value. Israelis who already own one apartment – and all non-Israeli buyers – are limited to 50%.  That said, foreign residents may be eligible for 60% financing, if the loan is taken in foreign currency.

The bank determines the property value by looking at the purchase price and the appraisal value, and working with the lower of the two figures. It is therefore advisable for buyers who seek large mortgages, to obtain an appraisal report from a professional appraiser in Israel, before signing a purchase agreement.

2. How much can you afford to pay back each month?

Israeli banks always require borrowers to provide income verification, even if the percentage of financing is relatively low.  As a general rule, they require monthly income to be three times the monthly mortgage payments. For example, if your mortgage payments are 4,000 NIS per month, the bank will want to see that you have net income of 12,000 NIS per month. There is some flexibility on this rule, especially if a client can show other savings or assets. In most cases, the banks will want to see a client’s current income; including their most recent pay slips, bank statements and ID documentation. For a foreign resident, the past two years tax returns, credit history, and a letter from an accountant will usually suffice.

The first step in the mortgage process in Israel: Getting pre-approved

The first step in taking a home loan in Israel is obtaining a pre-approval letter (ishur ikroni). Pre-approval letters can be prepared even before you’ve picked out your home, based on what you can afford. With a pre-approval in hand, buyers know exactly how much they can borrow – and therefore how much house they can afford. This puts the buyer in a stronger position to make an offer, negotiate and close on a property. Pre-approvals are valid for 3 months and can usually be extended if you do not find a property immediately. If you are starting to look to buy a home, the first step should always be to get pre-approved for a loan.

The writer is a mortgage broker at Mortgage Israel, a private mortgage consulting firm in Israel. He can be reached by telephone at +972 546 822 174 or by email at [email protected].

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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