Frequently Asked Questions
How are mortgages in Israel different from mortgages in the USA?
There are many differences between borrowing in Israel and borrowing in the states. First off, in Israel banks discriminate against age. Secondly, the banks in Israel typically require the registration of a life insurance policy for the duration of the loan in order to borrow, whereas in the US that is not generally required. Lastly, in Israel, you can mix and match different types of mortgage products within certain criteria which is not necessarily possible in the states since your entire mortgage would be on one product.
How much can I borrow?
It depends on the residency of the borrowers. The Bank of Israel’s regulations states that an Israeli resident (not necessarily a citizen) who is purchasing their first property can borrow up to 75% of their Loan To Value (LTV). A foreign resident can borrow up to 50% LTV on a typical mortgage product which is the cheapest money one can borrow from the bank. There are products that are available for foreign residents as well, but when discussing Israeli residents receiving a loan for a first-time home purchase they can receive up to 75%.
How is my residency determined?
It is purely dependent on how the purchase tax declaration will be made. This is something that a lawyer deals with, so we strongly recommend speaking with your lawyer about this particular subject.
What is the average loan period on a mortgage in Israel?
Since we know that Israeli banks will discriminate against the age of the borrowers, banks will typically prefer for the loan to fully mature by the time the borrower hit 75-80 years of age. Although there can be exceptions to this rule, it is much harder to attain mortgage loans outside of this standard. Generally, a bank will look at the younger person of the two borrowers if they are a couple in order to maximize the time frame.
Do I qualify for a mortgage on foreign-based income?
To qualify for a mortgage in Israel, your monthly mortgage payment cannot be greater than 40% of your net monthly income. Ultimately, it is easier for Israeli banks to look at one’s monthly income when it is with an Israeli salary, although it is more complicated when the income is foreign-based, it is still a common occurrence that can be managed to give you the best-case scenario. When done incorrectly, however, one can face losses on tax returns. At the end of the day, foreign income is quite common, so the best advice would be to have a mortgage consultant to ensure that you truly get the best deal out of your mortgage and that no bank is cutting any corners.
What are the mortgage rates in Israel?
There are several different mortgage products in Israel. It is possible to even mix and match different kinds of mortgage plans within certain types of criteria.
A foreign resident has the advantage of taking an entire loan at a variable rate, which is lower than fixed-rate mortgages.
Although it can be comforting to work only within fixed rates because it is a “what you see is what you get” concept, typically the variable rate is the lowest-effective rate which can save more money at the end of the day. Other products have the potential for a prepayment penalty. When dealing with prepayment penalties, one can lose out if the fixed cost is lower because there will be a penalty, but if the fixed rate is higher then there is no penalty. Furthermore, people don’t necessarily want to be locked into a product because they intend to pay off the loan earlier rather than the full term. It would take a longer-term to lower the payment whereas variable rates have no penalty which makes it easier for the borrower to pay off.
For an Israeli resident, however, they must take a minimum of a third of the loan at a completely fixed rate (which is a more expensive rate) and are permitted to take a maximum rate of one third on a variable rate.
How should an Investor look at the mortgage rates?
When investors look at properties in Israel, they assume that the mortgage rate will be covered by the rental income so they try to structure the mortgage so that the mortgage payment will roughly be covered by the rental income. With this in mind, it is the job of the real estate agent working with the investor to ascertain the purpose of the property and to see what the projected resale rate is for the property.
Am I allowed to borrow a mortgage in a currency other than the shekel?
Simply put, the answer is yes. A borrower is allowed to earn a loan in the currency of their income in order to avoid a currency risk when they are paying out their mortgage. On the other hand, people want to take out their debt in the currency that the asset is held in. This means that if the asset is held in shekels, they will want to take out the mortgage debt in shekels as well. It is all based on a case by case scenario of what works best for that person at that time, so always meet with a mortgage consultant at first.
Can one use a foreign co-borrower?
Yes, it is very common for residents to use people abroad to co-sign on a mortgage loan. It happens frequently, especially for young couples or students that do not yet earn a substantial income that have parents or friends helping them qualify for a loan from abroad. Additionally, a foreign resident can still use a foreign co-borrower to qualify for a loan, meaning it is not required for any of the borrowers to be citizens of Israel since residency is sufficient.
Do I need to be in Israel to obtain a mortgage?
It is absolutely possible for borrowers to complete the mortgage processes from start to finish without being in Israel. First Israel Mortgage guarantees its services can be rendered without being in Israel and takes care of all of the complicated paperwork for you in order to stay abroad especially during the world’s current climate.
Even more so, it is imperative that you trust your real estate agent to be on good terms and to have a good relationship with the mortgage consultant. Because the mortgage system in Israel is known for its lack of transparency, it’s all the more so important to know that the real estate agent is going above and beyond to ensure that everything is being taken care of correctly. Especially if undergoing this process from abroad, the real estate agent is another pair of eyes that supervises the process and ensures that all money being invested is proper money spent.
How long does it take to get approved for a mortgage?
It is important for borrowers to understand that the approval process for mortgages is about the bank approving the client and not about the property. Therefore, borrowers can shop for the property that best suits them without having it affect their mortgage approval process. Someone who is looking to finance a property would be interested in receiving pre-approval. Pre-approval is valid for up to 90 days without it being contingent on a specific property. Generally, a loan of fewer than 5 million shekels takes 7-10 days to attain approval. A loan above 5 million shekels should take between 10-20 days for approval. Once a borrower obtains approval, it generally takes 45-60 days for the bank to be able to begin funding the property.
For example, from the standpoint of a negotiation with the assumption that the borrower has been pre-approved at 75%, the best negotiation tool when bargaining for a property is that the buyer can place a 25% down payment on the property. After that, the buyer just needs to wait 60 days for the mortgage loan to take place.
What is required of the borrowers for the mortgage process?
For the banks:
Last 2 years of personal tax returns
Last 3 months transactions on a checking account (both foreign and Israeli accounts)
For American’s: a credit score
Structure insurance on the property which protects against fire and water (strictly structure and not contents insurance).
What do I need to know about life insurance in regards to mortgages?
A good policy of life insurance from a trusted agent is going to be expensive depending on the age of the borrower. Sometimes it is possible to get a waiver for life insurance, but ultimately, it is a component of mortgages that must be dealt with on a case by case basis.