Preparing to Buy a Home in Israel
Buying a house in Israel is a serious commitment, so before you start looking for a house, take the time to examine your situation and how it could change in the future. Ask yourself:
- Are you planning on any major life changes, like changing jobs or moving communities in the next few years, that could impact your financial situation?
- Can you commit to staying in a home (and community) for at least five years?
- Do you have a stable income?
- Are you confident you can handle house repairs (or can take the time to learn)? Have you budgeted and/or are you willing to pay a repairman when something breaks?
All of these are important to take into consideration when you are thinking of buying a home in Israel. If you are ready, then let’s move on.
Dealing With Banks
All major banks in Israel are able to provide mortgage loans. If you plan on dealing with the banks yourself (i.e. without a mortgage broker) then you need to call up your bank’s customer service line and schedule an appointment with a mortgage advisor (יועץ משכנתאות). NOTE: There is a crucial difference between mortgage brokers in the US and those in Israel. In the US, brokers collect their fee from the bank. In Israel, however, the broker gets paid by the homebuyer. This is enormously beneficial to the buyer for one important reason; it means that the broker is in your corner, motivated to make sure the bank gives you the best rates and loan terms. In Israel, brokers are the friends of the buyer.
The Israeli Housing Ministry (along with other relevant government bodies) has strong regulations over mortgage loans. However, banks often interpret laws slightly differently and so, can have variations in their operating procedures. This can result in small, but substantial, differences in financing, rates provided, as well as other general advantages and disadvantages of each bank, depending on the loan and circumstances.
First time homebuyers in Israel are eligible for maximum 75% financing, though banks often prefer to approve only up to 70%. In addition, there are multiple tax exemptions and benefits for first time buyers (link to article).
Buying in Israel as a Foreigner
Foreigners are only able to receive 50% financing when buying property in Israel. There are other options available, depending on the bank, to qualify for an additional 20%, such as additional loans from the mortgage-lending bank or other banks, to help provide the ideal principal amount. The tax burden on foreigners buying a home in Israel is similar to that of an Israeli purchasing a second property. Regarding the mortgage procedure, certain banks allow the borrowers to complete the entire process from overseas through a lawyer or close family member’s power of attorneys; though the majority of the banks require physical in-person verification. Doing the process from overseas can be limiting and can result in losing out on the better deals available if the process is done locally.
Commercial Real-Estate & Business Mortgages
Depending on the bank, borrowers can receive between 60%-70% financing. The length of the loan period is shorter than a standard mortgage; ranging between 15 to 25 years. US LLCs find this to be a lucrative option and they can qualify for 70%. Please take into account that the tax rates are different from a regular home mortgage and it is advisable to consult with a lawyer or accountant on the matter.
Finding a Home in Israel
Finding Homes for Sale
You might be used to seeing “For Sale” signs in your hometown. While you will also find these in Israel, it is far more likely to find homes for sale in other ways.
Searching online and exploring the neighborhood you want to live in can be a great start. Israeli websites like Yad2.co.il, Madlan.co.il, and Homeless.co.il are some of classic options for finding properties for sale. Social networking sites can also be a great option.
Using a real estate agent is a great way to see exclusive properties that are often perfectly suited to your needs you wouldn’t have otherwise known about. Many agents will even let you have a viewing remotely, which is another advantage for Anglo buyers. Today, many agents provide excellent video walkthroughs of the home which can save hours of time. Agents will also be able to point out homes that match your goals and can help you keep an eye out for new homes on the market, while also being able to incentivize a sometimes needed open-mindedness and flexibility needed when buying a home in Israel. This is the most preferred option for foreigners.
When browsing home listings, remember that you’re not just buying the building; you’re also buying a home that should match your lifestyle. Some aspects to keep in mind, aside from the house itself, include: the neighborhood, the commute, the schools, and the public transportation.
First, decide what kind of lifestyle you are looking for. If you love the city atmosphere with a lively nightlife, then you should consider Jerusalem or Tel Aviv. Both cities have multiple areas that offer a higher concentration of English speakers, and your real estate agent will help you look for properties in those areas.
If you are looking for a quieter and calmer lifestyle, then you will probably want to look at Yishuvim or smaller cities. Again, your real estate agent will help recommend properties that fit your requirements.
NOTE: Many Yishuvim will require you to be accepted by the municipal council before you can purchase a home and move in.
If you’re switching locations in a significant way, consider how much time you’re comfortable spending on your commute to work. Are you close to other cities that provide employment options in your field should your current employment expire? Have you explored remote working with your employer? Israeli culture typically does not include long commuting times. Smaller highways at rush hour can be particularly frustrating for foreigners.
If you have children (or plan on having one day), take some time to review the local schools in the area. Even if your family doesn’t involve a future with children, keep in mind that a good school district adds value to the home, thus making it easier to sell at a later point in the future.
Public transportation in Israel is constantly developing, and is far behind in many areas of Israel. There are quite a number of locations that require owning a car. Most major cities are currently expanding their light rail systems, and the Israeli train system is working on connecting more and more cities. However, there is a long way to go and so it is wise to investigate public transportation options in the area for all members of the family.
The House Itself
First things first, we have to schedule the house viewings. Once you find a house you’re interested in, your real estate agent can schedule a time for you to view the house, typically without the sellers or other potential buyers present. If you’re not working with an agent, you can contact the seller’s agent to schedule a viewing. Sellers may also host an open house as a chance for potential buyers to view the house.
What to Look For at the Viewing:
If you decide to make an offer, a home inspector will complete a more thorough review of the home, but there are some potential red flags that you can look for upfront yourself:
Plumbing and Electrical Issues
Check all the light switches and electrical outlets. Make sure the faucets and toilets don’t leak, and look for evidence of water damage on the floors and ceilings.
Old Appliances, Chimneys and Gas Furnaces
If these items are older or haven’t been serviced recently, you may need to have them cleaned, repaired or replaced.
Radon, Lead Paint and Carbon Monoxide
Ask the seller if the house has been tested for any of these. If it hasn’t, you can have these tests done as part of the inspection.
Full or Defective Gutters
If the home’s gutters are full or not working properly, they may be allowing rainwater to pool near the foundation of the home. This can be an expensive problem to fix.
Tree Location and Quality
Try to assess the likelihood that a tree might fall on the house during a storm or strong winds.
The Five Elements of a Mortgage
There are two main different types of mortgages; housing and all purpose.
The most popular type is a housing mortgage. These are the best rates a person can get, up to 30 years. The mortgage itself can consist of different loans, with each loan for a varying length of time, and is relevant for the following loans:
Purchasing a home from a contractor (kablan)
Purchasing a second-hand home
Building your own home, including the land
Expanding one’s current home (with legal building permit)
The maximum financing percentage for these types of loans are between 50%-75%.
Similar to a home-equity loan in America, this is when you mortgage your existing home. Unlike the housing mortgages, here the money is transferred directly to the borrower’s account (unlike in a housing mortgage where the funds are transferred to the seller). Lengths of the loans vary depending on the bank and can be up to between 20-25 years. These loans have higher rates than housing loans and usually are for smaller amounts. This is relevant for:
Refinancing bank loans
Loans for down payments for childrens’ homes
Paying for weddings
Purchasing real estate overseas
Not for business loan purposes
The maximum financing percentage for these types of loans is 50%.
-First-Time Homebuyer: Up to 75% financing.
-Alternative Homebuyer (a homeowner in transition, selling his first home to buy a second: Up to 70% financing.
-Second Home (in Israel): Up to 50% financing.
-Buying as a Foreigner: Up to 50% financing.
There are different kinds of homes that you might decide to buy in Israel, and each one has its own specific rules regarding the kind of mortgage that you can get.
Firsthand (or יד ראשונה) homes are brand new. They come to you directly from the contractor or developer that was responsible for building them.
Secondhand (יד שנייה) homes are any homes that are not firsthand. For the purposes of mortgages, secondhand means that you are buying a home from the previous homeowner.
Over the Green-Line
When buying over the Green Line, people should be aware that many homes have different legal status and as such the banks treat them differently, often resulting in less than favorable terms including higher interest rates and many times require higher down payments
Mortgages in Israel are usually comprised of a mix of three loans; fixed, floating and prime.
Fixed-Rate Loan (non-CPI linked)
Considered to be the most expensive and safest loan.
The monthly payment does not change throughout the course of the entire loan.
Good for risk-averse investors.
One can take between 0%-100% of the mortgage loan at this type.
Fixed-Rate (CPI linked)
The rate itself is fixed, but the principal is linked to the consumer price index and can increase or decrease, depending on the CPI (inflation).
For people just starting off looking for lower monthly payments, expecting to refinance in the future with higher income and higher monthly payment.
Used for shorter loan periods, if inflation isn’t high.
Can be dangerous over the course of 20-30 years as the principal could grow substantially over a long period of time, making the monthly payments very high.
Can involve high early repayment cancelation fees.
5-Year Floating Rate (non-CPI linked)
A combination of a fixed unchanging rate and a variable rate loan. The loan is fixed and readjusted every five years, according to a known reference point that is not dependent on the bank (usually a 5-year government bond anchor – like Shahar).
Considered to be more expensive, but relatively safe as the monthly payments don’t change until the rate is updated.
When the rate updates (every 5 years), an option exists for early repayment (anywhere between 10%-100%) without penalties.
Can comprise up to two-thirds of the mortgage loan.
5-Year Floating Rate (CPI linked)
Similar to the non-CPI linked, the rates update every 5 years, as it is linked to inflation the principal can go up or down depending on the CPI inflation rate.
Benefits include dramatically lower rates as compared to the fixed, though it involves a high risk as the monthly payments can grow.
Good for those who believe they will be able to pay off a portion of the principal throughout the loan period.
Currently a more popular choice among mortgage borrowers as the difference between the linked and non-linked is high.
This loan is completely variable and set by the Bank of Israel. It can change up to eight times a year, though usually the rate doesn’t fluctuate that often (especially in the last decade). Currently it’s at its all time low, and is expected to go up with time.
Used as the base loan for all mortgages in Israel, 1.5% above the Israeli market rate.
Currently the lowest rate available, though it carries the highest risk.
Carries no early repayment fees as long as one notifies the bank, minus a 60 shekel bank service fee.
Due to the possible volatility of this loan, the Bank of Israel (BOI) previously limited the amount to up to one-third of the loan. However, due to the pressure on the BOI regarding the fact that the prime rate has been historically low with barely any volatility for the past decade, now one can finance a mortgage with a loan of this type of up to two-thirds; though the rate does increase for the second third.
A loan which changes every 3, 6 or 9 months as based on the LIBOR rate.
Considered high risk and not a good loan option.
Used for borrowers who hold foreign currency.
Available in dollars and euros, though the monthly payment must ultimately be made in shekels.
Foreigners are able to take up to 100% financing of the mortgage using a LIBOR-based loan and Israelis 50%.
1-30 years (until the age of 75-80, bank depending)
Mortgages require mandatory life and homeowners’ insurance.
One has an option to use the bank’s insurance providers or insurance can be acquired independently via local insurance companies.
Why use a Mortgage Broker
Israel has recently seen a 30% increase in citizens hiring mortgage consultants. It’s important to realize that Israel does NOT require mortgage brokers to have a professional license in order to operate. Because it’s a relatively new field, there is little oversight.
This results in a lot of brokers who are not equipped to handle the complexities of mortgages and negotiations, among countless other issues.
There is, however, an organization called the Israel Mortgage Advisors Association, which is the only recognized organization for mortgage consultants. They ensure that their members are fully qualified to work in the field. They work closely with the regulators in Israel and have convinced them of the importance of mortgage brokers in Israel.
So your FIRST step is to make sure that your consultant is certified by the Israel Mortgage Advisors Association.
Benefits of Working with a Mortgage Advisor/Broker:
Ensures you have the proper understanding of the different loan options available and tailors the best mortgage for your personal financial needs.
Negotiates on your behalf at the different banks, ensuring you receive the best rate. Good brokers can save you tens of thousands of shekels.
Provides support and knowledge to ensure the property purchased is most suitable for the buyers.
Helps navigate through the complicated Israeli bureaucracy and regulations, simplifying the process substantially and preventing unwanted surprises.
Finds you the right bank for your mortgage.
These reasons, and others, make it important to find an experienced mortgage broker to represent you.
Professional Contacts and Networks
Malchi Mortgages works with a super array of professionals in the housing field, including renovators/contractors, lawyers, appraisers, insurers, etc.
Getting Mortgage Approval
The Israeli Approval System
(The Requirement of Pre-approval, Contrasted to the American System)
Pre-approval is called אישור עקרוני (“ishur ekroni”), and is based on facts provided to the bank. The preapproval will show the rates the bank is willing to provide the mortgage at, as well as other loan terms. These rates are valid for 24 days, after which the rates can fluctuate, depending on the market and/or other conditions. The floating rate part of the rate updates on the 10th of the month. The preapproval itself is valid for 3 months.
Why Pre-Approval is Crucial
Pre-approval shows sellers and agents that indeed you are ready to purchase a home. It gives buyers confidence as well, giving you knowledge of the terms of the loans you will most likely be getting. Many agents actually require a pre-approval prior to any house viewings. It gives buyers a realistic idea of what the monthly payments will be and what working budget they have with regards to the purchase price of the home.
How To Get Pre-Approved
A mortgage broker will represent you to all the major banks. A good mortgage broker will know how to shop around and navigate your needs in the market. Without a mortgage broker, a buyer must contact each individual bank’s mortgage customer service line and schedule an appointment with a loan officer (יועץ משכנתאות). These are often new and inexperienced agents who answer the phone/emails, and won’t be able to secure for you the best rates, let alone know how to tailor your mortgage to your individual needs. It makes negotiating very difficult as you have to start at the bottom at each bank. Experienced brokers already have contacts they work with on a regular basis and can get you to the front of the line, in the VIP section, as it were.
What the Bank Will Review
The four main criteria that banks review when assessing your mortgage rates are the buyers’ assets, income, credit rating and the loan amount LTV (loan to value), i.e. the value of the home versus the loan and down payment. A higher down payment percentage means more competitive rates. Malchi Mortgages specializes in ensuring you are represented to the bank in the best way, to secure the most attractive pre-approval rates, allowing you the most flexibility and budget when deciding on your home in Israel. An experienced mortgage broker wil factor in the total mortgage cost, monthly payments, interest rates and loan period in order to design for you the perfect loan, factoring in potential future interest rate fluctuations and other market conditions worth considering.
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