Legal and Financial Planning for Foreign-Resident Buyers
When purchasing real estate in Israel as a foreign resident, it’s crucial to approach the process with proper planning and professional guidance to avoid potential pitfalls. Below is a clear outline of the key steps and considerations from both a legal and practical perspective:
1. Planning and Financing
Establishing Your Budget
Before proceeding, calculate your overall budget, including the purchase price, taxes, legal fees, and other associated costs. To do this properly, consult your Israeli real estate lawyer first.
Unlike in other countries, Israeli real estate lawyers play a more central role in property transactions. Your lawyer will help you calculate the taxes and fees involved and outline the costs associated with various transactions.
Mortgage Eligibility and Options
A key element of your budget is determining whether you can obtain a mortgage and what it will cost.
Many Israeli banks offer mortgages to non-residents, though terms, eligibility, and interest rates can differ from those offered to local buyers. Because this process is complex, it is highly recommended to consult with an Israeli mortgage advisor who can:
- Approach multiple banks on your behalf
- Guide you on the required documents
- Negotiate terms and interest rates
This can save you significant money over the life of the loan.
Many foreign purchasers choose to take out a mortgage or loan from their local bank using their property abroad as collateral. If the rates are better than those at an Israeli mortgage bank at that time, this could be a good option
Many people consult with their local finance consultants to decide which path to choose – the Israeli mortgage or the local home equity loan. However, many of these foreign financial consultants do not understand the Israeli economy, markets and costs. It is best to consult with a financial consultant who has knowledge and experience both in Israel and abroad.
2. Currency Exchange and Banking
Understanding Fund Transfers
Be mindful of currency exchange rates and Israeli banking regulations. Opening an Israeli bank account can simplify transfers and ensure regulatory compliance. However, this can be challenging if you’re not in Israel:
- Most banks require you to appear in person with your passport.
- One Israeli bank allows account opening via a power of attorney.
- Some banks have stopped offering accounts to non-residents altogether.
- All these problems miraculously fall away if you take a mortgage from an Israeli bank. When taking a mortgage from an Israeli bank you need an Israeli bank account from which to pay the monthly mortgage payments. In this case, the Israeli bank will open an Israeli bank account for the foreign resident very quickly – before you can say “Jack Robinson”.
Using Currency Exchange Companies
Another option is working with a foreign exchange company. These firms allow you to:
These companies allow a foreign resident to send over foreign currency to them, convert the money into NIS and a lower cost and better rate than the average Israeli bank and then have the money deposited in the local Israeli bank account that was opened for the foreign resident or, the exchange company will disburse payments for you directly. Each option has its pros and cons. It is important to understand the various options and see which works best for you. Your Israeli real estate attorney can review the options with you.
3. Compliance and Documentation
Anti-Money Laundering Regulations
No matter how you transfer funds, you’ll be subject to Israeli and international anti-money laundering laws. Be prepared to provide documents such as:
- A letter from your accountant showing the source of funds and proof of local tax payments
- a letter from your Israeli real estate attorney which explains the reason for the transfer of funds
- Income tax returns
- Bank statements
- A draft or signed purchase contract
You need to leave enough time for yourself to get these documents organized so they can be presented to whoever is asking for them (bank clerk, mortgage bank, exchange company etc.).
Liquidity Considerations
If your money is closed in investments or savings accounts, it is important to assess how much time you need to make these funds liquid so that they can be transferred to Israel.
The Importance of Professional Guidance
Like any cross-border investment, purchasing real estate in Israel requires thorough preparation. Your Israeli real estate attorney is a critical part of this process—helping you navigate financing, legalities, and compliance smoothly.
