For many first-time homebuyers, turning the dream of homeownership into reality can feel like an uphill battle. The combination of hefty down payments and construction costs often makes the financial hurdles seem overwhelming. In addition to that, the challenge of paying rent while financing a new home and the dream of homeownership may feel even further out of reach. But what if there were a way to ease these burdens? Enter the Halva’at Kablan, or contractor-paid loan—a unique financing option to make newly built homes more accessible to first-time buyers. But is it the right option for you?
By Aaron Krasner
What is a contractor-paid loan?
The Halva’at Kablan (contractor-paid loan), is an innovative solution to construction financing that offers significant benefits for buyers and contractors. Contrary to common belief, this loan isn’t taken out by the contractor to assist the buyer; instead, it works by the contractor offering the buyer a favorable payment plan. The buyer must only pay a small down payment at the start (typically 15-20%), with no additional payments due until the property is complete. The buyer then takes a short-term bridging mortgage from a major bank, which provides the loan funds directly to the contractor.
During the construction period, which typically lasts 2-3 years, the contractor covers the interest on the loan, easing the buyer’s financial burden. Once construction is complete, the buyer can either refinance into a standard long-term mortgage or repay the loan in full. This structure creates a win-win scenario: the buyer enjoys reduced upfront costs, and the contractor gains the necessary financing to complete the construction project.
Advantages of a Halva’at Kablan
The Halva’at Kablan offers several benefits, especially for first-time buyers. The most obvious advantage is the reduced financial burden. Buyers are only required to pay a small down payment at the start, with no further payments due until the property is ready. This allows buyers to avoid the stress of juggling rent payments and construction loan costs simultaneously. Additionally, buyers can refinance into a more favorable long-term mortgage if interest rates decrease during the loan period.
Potential disadvantages to consider
While the Halva’at Kablan offers clear benefits, there are some potential risks. First, the short-term nature of the loan—usually 24 months—can create challenges if construction delays occur. In such cases, buyers may struggle to refinance or repay the loan before receiving the keys to their new home. Additionally, like traditional mortgages, the loan is subject to bank underwriting, so lenders will assess the buyer’s financial capacity to ensure they can afford payments after the bridging period.
Another consideration is the limited refinancing options. Even after construction, the contractor technically owns the project, which can restrict the buyer’s ability to secure refinancing at other banks. In most cases, the loan can only be refinanced at the same bank, reducing the opportunity to negotiate for better rates and terms. There’s also the risk that interest rates could rise in the next two years, which may make buyers regret not locking in a long-term mortgage sooner.
The contractor-paid loan also carries significant risks related to interest-only structures. At the end of the 24-month term, the borrower is contractually obligated to repay a substantial lump sum. While the bank may offer refinancing, it’s not guaranteed—especially if the borrower’s financial situation has worsened. Some banks have even discontinued this type of product due to these risks. As a result, buyers may face uncertainty when trying to secure refinancing or repay the loan. Opting for a traditional long-term mortgage from the beginning may help mitigate these future financial challenges.
Finally, to qualify for a Halva’at Kablan, buyers must demonstrate that they can complete the full down payment by the time the property is ready. For example, if a buyer pays 20% upfront and is approved for a 75% mortgage, they will still need to prove they have the remaining 5% available—whether in savings, stock portfolios, or other assets.
Is a contractor-paid loan right for you?
The Halva’at Kablan provides an innovative solution for first-time buyers, offering reduced upfront costs and eliminating the need for double payments. However, it’s essential to consider the benefits and risks carefully. Buyers should ensure they’re financially prepared to handle refinancing or repayment when the loan term ends and be aware of the potential impact of fluctuating interest rates.
If you’re exploring the contractor-paid loan option, it’s a good idea to consult with a trusted mortgage advisor. They can help you evaluate whether the Halva’at Kablan aligns with your financial goals and circumstances.
Aaron Krasner is a private mortgage consultant in Israel and is the owner of Anglo Mortgages. Aaron can be reached by email at [email protected].
