Mortgages – The Israeli System (Part 1)

The mortgage system in Israel is very complicated.  Perhaps more so than other places in the world.  Here is a birds-eye view on how the system works here.

When you apply for a mortgage the banks ask to see the last three months of bank statements and pay slips.  The rule is that you need to be earning at least three times the amount of your projected monthly mortgage payments.  For example, if your monthly mortgage payments are going to be 5,000 NIS a month, then your salary must be at least 15,000 NIS a month.  The banks will look at your bank statements to see that your financial commitments are being honored and no checks are bouncing.

If you happen to be a foreign resident, the mortgage bank will ask to see bank statements as well as credit reports and income tax returns.

The initial paperwork will be reviewed by a clerk at the mortgage bank and an answer as to whether or not the bank is willing to give you a mortgage is given within a few days.  Once you have your initial mortgage approval, you’ll need to make an appointment at the bank to open up a file and start the process.  Bring to this meeting a copy of the signed contract, proof of identity  and  proof of ownership of the apartment you are buying.  You will be asked to sign a loan agreement and given a series of documents to be processed.

These documents include:

  • an invitation to an appraiser to appraise the property
  • a power of attorney to the bank that has to be signed by you and notarized
  • documents mortgaging the apartment to the bank to be signed by the sellers
  • documents to be signed by the sellers which include instructions regarding where the mortgage money is to be deposited and how much the sellers have already received in payment towards the full price
  • if the property is still mortgaged to the mortgage bank of the sellers, then proof that the mortgage has been lifted has to be presented to your mortgage bank

If the seller is in need of money from you in order to lift his mortgage and you need to get the mortgage money in order to pay the seller the money needed to lift the mortgage then we seem to have a problem.  The way to solve this is to bring a letter of intent to your mortgage bank from the seller’s  mortgage bank.  This letter assures your mortgage bank that if they pay off the seller’s mortgage in the manner set out in the letter of intent, then the mortgage will be lifted.

Upon receipt of such a letter your mortgage bank will first transfer the money necessary to lift the seller’s mortgage.  As soon as proof is given to your mortgage bank that the seller’s mortgage has been lifted, your mortgage bank will pay over the rest of your mortgage to the seller.