You’ve found your dream home in Israel. Now, how are you going to pay for it?
- What bank should you go to?
- What type of mortgage should you take?
- Will you be able to afford the monthly repayments?
- How will you navigate all the paperwork?
- Can you take out an Israeli mortgage when you are living abroad?
One of the most difficult parts of any Israeli real estate deal is getting the mortgage. Many people make the mistake of thinking that if the bank has approved their request for a mortgage, the money will miraculously be transferred to their account within a few days.
That’s simply not the case.
The truth is that while it’s perfectly possible to get a mortgage in Israel, you’ll need to understand how the system works in order to expedite the process.
- The mortgage banks have their own goals.
They want to give mortgages because that’s their business. But they also want to protect themselves. They won’t approve a mortgage before confirming your ability to make the monthly mortgage payments. When they are satisfied that you can meet the financial commitment, they will grant what is called “approval in principle.”
You can get “approval in principle” before a sales agreement is signed or before you even know what you are buying. However this “approval in principle” is conditional. The condition is that the purchase is a “good purchase” in the sense that the property is not worth less that the amount of the mortgage, and that the bank can protects its rights as a mortgage holder by registering the mortgage in the land registry. Meeting these legal conditions is the complicated part of the process.
To meet the first condition necessary in order to get the “approval in principal” you will need proof of income. The mortgage banks usually ask to see pay slips, bank statements, Income tax statements, credit reports or score reports (for foreign applicants) or perhaps a list of assets that bear income.
- You need to meet the legal conditions.
Make sure you leave enough time to do all the things necessary to meet the legal requirements of the bank.
To begin the mortgage application process you need to bring the bank a copy of the purchase agreement and a copy of the proof of ownership for the property. The bank will then open up a file and issue a series of documents for you to sign. These include:
- the loan agreement and its addendums
- documents mortgaging the property to the bank
- a standing order for your checking account to make the monthly mortgage payments,
- a power of attorney that has to be notarized which empowers the mortgage bank to foreclose on the property in case you default on the mortgage payments.
Since the mortgage money does not get paid to you directly, but rather to the seller, there are documents dealing with this as well. If the seller has a mortgage on the property then provision has to be made for this, since the bank will not give a mortgage unless the property is clear of debt.
If money is needed from your mortgage in order to lift the seller’s mortgage, a series of letters between the two mortgage banks will be needed to settle this. The bank will usually demand that you pay the amount of the price that is coming from your own funds first, before they release their money, so you have to bring them proof of the sum you’ve already paid. The bank will also require an appraisal of the property to ascertain that it is valued at more than the mortgage. The banks have a list of approved appraisers – you cannot pick your own appraiser.
All of the paperwork required requires a lot of running around. You have to register the mortgages in the Land Registry and Registrar of Pledges. You have to go to the notary and get the power of attorney notarized. You have to arrange and pay for the appraiser to visit the property. You have to bring paperwork to your attorney for signature. You have to bring paper work for the sellers to sign. When the seller’s mortgage is paid off you have to bring proof of this back to the bank so that they can give you the rest of your mortgage money if your mortgage is higher that your seller’s mortgage that was just lifted.
If it sounds complicated – it is!
While you can certainly do all the running around yourself, you risk wasting a lot of time and making mistakes because you don’t quite understand what to do or how to do it. If you’re abroad or unavailable because of work commitments or you simply want an easier time of it, consider asking your attorney or mortgage broker to help.
- Expect the unexpected.
Beyond the regular paperwork, the Israeli mortgage banks have begun interfering more and more in individual transactions. For example, if the seller is a foreign resident, proof that any capital gains tax due has been paid must be shown to the bank before they release the mortgage money. If the capital gains tax has not been paid, the bank may demand that funds be placed with the seller’s attorney in escrow until the taxes are dealt with. Sometimes, the amount required to be held in escrow bears no relation to the amount of the expected tax bill. A bank may demand that this escrow account be opened in their own bank so that they can monitor when the money is actually released.
The mortgage bank may also make additional demands if the seller of the property is not in the country and leaves his attorney a power of attorney to sign the documents necessary for the purchaser’s mortgage. If the legal department of the bank is not satisfied with the language of this power of attorney they will not accept the attorney’s signature. This means that the seller will have to sign a new power of attorney when he is abroad, forcing him to pay a visit to the Israeli consulate to get the power of attorney notarized. This will of course delay the mortgage process and delay can mean monetary damage to the parties.
- Insurance on the structure of the property is a requirement.
Israeli mortgage banks also require that you take out life insurance in addition. The insurance can be arranged through the bank but you may use your own insurance agent if you choose. Should one of the borrowers pass away, the mortgage is paid in full by the insurance company. If you have some kind of existing or past medical condition you will need to check whether this will prevent you from receiving approval for the life insurance. If it does, you might not be able to get the mortgage so you must check to see if some other solution can be found to solve this problem before you sign a contract.
- Israeli mortgage banks are large bureaucratic institutions.
To get the letters and confirmations needed for your mortgage take time. In general, the customer service leaves much to be desired and there is a lot of room for improvement on that score. Make sure that your lawyer leaves you enough time to organize your mortgage. Don’t expect to finish the process quickly.
- Pick the right mortgage at the right bank.
What type of mortgage should you choose? Which bank should you go with? Israeli mortgage banks give many types of mortgages. There are fixed interest loans. There are loans linked to the Israeli Prime interest rates or to LIBOR. There are loans linked to the dollar or other foreign currencies. There are loans for 10, 20 or 30 years. There are different ways of computing the payment of the loans. All these factors influence what this loan will cost you in the long run and your monthly payment schedule. Determining the best mortgage for your particular circumstances can often be difficult and confusing. A mortgage broker can help you with this. Since a mortgage broker has the power to bring banks a lot of business, they are often able to get their customers better rates and this translates into a big savings for you in the long run.
- Figure out your budget.
Many olim do not know how much it costs to live in Israel. How much does education cost? Babysitters? Entertainment? Transportation? Food? Municipal taxes? Your monthly mortgage payments? Make sure you have a realistic budget in place so you can be sure that you will be able to make you monthly mortgage payments. Consult a financial advisor or other professional if you need help.
Organizing a mortgage in Israel can be complicated but is perfectly possible. If you need the mortgage take it. If financing the purchase with a mortgage is favorable – take the mortgage. But don’t attempt to tackle the Israeli mortgage bank system by yourself.
Get help from people who deal with this daily and who can help you navigate the legal maze and survive with your sanity intact.