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Successfully Purchasing Real Estate in Israel : Financing (Part 2)

Navigate property buying with our financial planning guide. Understand total costs beyond the purchase price, including taxes and renovations. Learn more in our blog.

Your Overall Budget

Don't let yourself be taken by surprise, plan the acquisition of your apartment efficiently by factoring in all related costs!

Before determining the sum you wish to contribute out of your personal savings (down payment) and the sum you can obtain via a mortgage loan (Mashkanta), it is crucial to first understand the total sum necessary to purchase the apartment you desire. It is important to take into account not only the purchase price, but also related expenses such as notary fees, taxes, and possible renovation costs. In order to avoid unpleasant surprises that may arise during the purchasing process, it is important to create a financial plan in advance.

Here is a summary of the expenses to consider:

  • The property price is, of course, the main expense. To easily compare prices of properties you are interested in, use our advanced search engine or contact us directly.
  • The purchase tax is the second largest expense to be expected in general. The tax sum can vary between 0 and 10% of the price of the property. Tax discounts can sometimes be obtained, including for new immigrants (Olim Hadashim).
  • Renovations or work to be done on the property you wish to buy may also require a higher budget than you had initially planned. It is up to you to determine if it is really necessary and, if so, to evaluate the total cost of the work.
  • The construction cost index (Madad Tshoumot Bniya) is another factor that can impact your budget when buying a new property from a contractor (Kablan). This index is linked to the cost of incoming raw materials needed for construction and is constantly changing. The indexation can have a significant impact on the final price of the property, increasing the cost by 4 to 5%.
  • Legal fees are also foreseeable expenses upon purchasing a property. These fees typically account to 0.5-2% of the price of the property, excluding VAT. In Israel, your lawyer's job is to protect your interests and perform notary functions: legal verification, contract drafting, tax declaration, registration of property, and assistance with signatures. It is therefore crucial to include legal fees in your budget from the get-go, so as not to be caught off guard. 
  • Agency or real estate agent fees are not to be ignored, unless you are adamant on finding a property on your own. If you have used the services of an agent or agency, you will have to pay him a commission of up to 2% of the purchase price, excluding VAT.

Finally, don't forget to include moving expenses in your overall budget, especially if you are moving from abroad. Furnishing costs are another essential expense to factor in when relevant.

Own Contribution

Begin building your financial plan by calculating your own contribution, a crucial step in purchasing property!

A down payment is the sum of money you pay up front when purchasing a property. It can be paid through a variety of sources, such as savings, donations, an inheritance, the resale of a property, or a share of your company's profits.

The Bank of Israel limits mortgage sums in accordance with the price of the apartment purchased, which means that your own contribution must supplement the rates set by the Bank of Israel:

  • For the purchase of a first property, the Bank cannot lend more than 75% of the property's cost, which means that the own contribution must amount to at least 25%.
  • For the purchase of a new property combined with the resale of an existing property, the minimum own contribution amounts to 30%.
  • For the purchase of a property for investment, or taking on a mortgage for any other reason, the own contribution amounts to 50%.

Loans for the acquisition of discounted properties can amount to 90% or more, and in some cases require down payments of only 60,000-100,000 NIS.

If you are abroad or if the funds you need for the down payment are not in Israel, there are services that allow you to transfer your money in a simple and secure way. Read more in the following article.

Read More

Help With Buying a Property

Your own contribution can be supplemented by subsidized loans or tax reductions, depending on your status in Israel.

1. Reduced Interest Rate for Mortgage Repayment

In Israel, there are two types of real estate loans: mortgages granted by the State, called "Mashkanta Memshaltit", and by various banks "Halva'ot Bankaiyot".

Olim Hadashim can obtain mortgages to finance the purchase of a home if they meet the eligibility criteria and have a valid "Benefits Booklet" eligibility card (Teudat Zakaout). The loan sum is determined according to a points system based on family situation, age, time spent in Israel, etc. Olim Hadashim who have completed military or civilian service are eligible for additional assistance. Olim Hadashim with disabilities may also receive additional points based on their type and level of disability.

People who have already received a government mortgage can apply for a top-up loan from a bank. We highly recommend comparison of the loans offered by different banks - each have different terms and interest rates, which can sometimes be negotiated in order to get the best possible terms.

2. Discounted Purchase Tax (Mas Rechisha) For Olim Hadashim

Olim Hadashim are eligible for a reduced purchase tax on real estate purchased in Israel within the first 7 years of aliyah. In order to receive this discount, they must submit a request to the property tax department (Arnona) of the city where the property is located and provide the required documents.

3. Discount for Participants in the "Mechir LaMishtaken" Program

The Ministry of Construction and Housing in Israel regularly launches discounted housing programs such as "Mechir LaMishtaken" or "Mechir Matara" in order to help people purchase affordable housing. These programs may include financial incentives for eligible buyers, as well as restrictions on the resale and use of the purchased property. These programs are open to married or cohabiting couples, single, widowed or divorced individuals over the age of 35, single parents with a child under the age of 21, and single people with disabilities who are 21 and older. It is important to check the eligibility criteria for each program offered.

As you can see, it is essential to be well informed in order to receive all possible financial assistance. Do not hesitate to contact us, we at Immo Israel will be happy to guide you in your purchase.

Borrowing Capacity and Debt

Taking out a loan can be a real headache when you don't understand the workings of the Israeli loan system, especially when compared with systems used in other countries.

Unlike the UK, where debt capacity is limited to 33% of your monthly income, or the US, where it is limited to 28% of your monthly income, in Israel the bank allows a monthly mortgage repayment of up to 50% of your salary. The time limit for repayment of the loan is 30 years maximum.

Note that there is no such thing as a zero interest loan for the purchase of property. In order to obtain a loan you must provide proof of your income, which will allow the bank to calculate your repayment capacity. We recommend negotiating the loan terms with different banks or with the help of a broker or lawyer. As mentioned above, Olim Hadashim can benefit from a fixed rate loan of 3% for part of the loan. However, it is important to compare different bank loan offers, as it is possible that you will be offered a better rate as a result of negotiation and competition between banks. It is also important to obtain the loan agreement before signing the purchase contract because, unlike in the US, loan refusal is not a suspensive clause.

It is also possible to borrow money from a US bank in order to pay for a property in Israel, provided you have a property in the US to guarantee the loan.

Be careful! If you are going to take out a loan to buy a property, it's extremely important to obtain loan authorization from the bank regarding the amount you wish to borrow, before you even start viewing options. This authorization is called "Ishour Ekroni", and consists of the bank's hypothetical agreement to the amount you wish to borrow.

Would you like to be contacted by a English-speaking mortgage advisor? Send us a message through our contact form.

Borrowing Capacity and Debt

Property Resale

Sell or buy first? That's the question to ask if you wish to finance your purchase by reselling a property. Each option has advantages and disadvantages, so it's up to you to decide what order is right for you.

Buy First

By buying first, you guarantee yourself a home; you won't have to rent an intermediate home or move back in with your parents after leaving your current home. However, in this case it is very important not to overestimate the price of your property and to carefully examine the market beforehand so as to avoid purchasing a property that you won't be able to afford. To secure your financing, you must have enough for your own contribution (minimum 30% as explained above). This can come from your personal savings, bank loans, or bridging loans (Halva'at Gishour), which are granted for short periods of time and will need to be repaid in full once your property is sold.

Sell First

Although this option may seem more stressful at first, it does have some advantages. By selling first, you will receive a portion of the sale proceeds ahead of time, thus providing a solid financial base for the purchase of your next home. You will also know exactly how much money you have available for the purchase of your new property. The trick in this case is to proceed with a "long sale", specifying that the property will be available within six months, thus buying you time to search for a new property. However, you must be careful to manage the money you receive and avoid spending it in an untimely manner.

Next post: Find a Property in Israel

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