Using a mortgage broker when purchasing property in Israel is a must. For many coming from abroad, there are many nuances both culturally and systemically in how the Israeli banking system works, which are quite different from the way things function in other western countries. This can make the mortgage process hard to understand, navigate, and negotiate.
Some important differences of note:
· There are no mortgage contingencies in Israel: In the US, the purchase contract is first signed. Then the purchaser has a certain amount of time to obtain a mortgage. If the mortgage is not forthcoming for whatever reason, the purchaser can back out and have their down-payment refunded. In Israel, once you sign your contract, you are tied to it. If later you find out that the bank will not give you a mortgage, you can lose your down-payment. For this reason, a mortgage pre-approval becomes very important, and a mortgage broker will be able to walk you through the process.
· You cannot roll your closing costs into your mortgage in Israel: In the US, you can have the bank pay all of your closing costs, and simply add it to the principle of your mortgage. However, in Israel you cannot do that. So, when budgeting your available funds for a down-payment, you must also consider the amount you will need for closing costs. There are sometimes separate bank loans that can help cover some or all of your closing costs. A mortgage broker can help explain the costs, explain all the options, and help with coordinating the bank loans if applicable.
· Mortgages in Israel are limited by age: Banks will generally only lend to age 80 or 85. So if you are 65 years old, the maximum term you will be able to get for a mortgage will be between 15–20 years. There are sometimes ways to work around this a bit, and your mortgage broker can help guide you.
· Banks are limited by law as to the amount they can lend you: For example, for a first time Israeli homebuyer, they can lend you only up to 75% of the price. For a foreigner, the limit is up to 50%. However, there are ways of obtaining additional funding up to 85% for both Israeli residents and foreign buyers, and one instance where 90% is possible. Your mortgage broker will help you with all of this.
· You can mix and match different types of loan products within one mortgage, but watch out for ‘linked’ products: In other parts of the world, the ’30 year fixed’ mortgage is the gold standard. In Israel, a 30 year fixed is available, but it’s not the necessarily the best option for all borrowers. There are also variable rate options, adjustable rate options, and even USD$ and Euro options. Each have their advantages and disadvantages, and it often makes sense to hedge the advantages and disadvantages of each by combining several products within your mortgage. A mortgage broker will help guide you through this. One important aspect that the banks often neglect to tell you, is that these different products are available as either ‘linked’ or ‘not-linked’ to the inflationary index. It’s important to understand the repercussions of each. Sometimes linked products can make sense, but if not weighed carefully, it can turn what looks like a cheaper mortgage on the surface, into quite an expensive one.
There are of course many other points of note and pitfalls to avoid when taking out a mortgage in Israel. That is why it is so important to use a mortgage broker. The benefits gained will more than justify the expense.
My goal as a mortgage broker is to alleviate the stress involved as much as possible, by guiding my clients through every step. With my previous experience as a lawyer in the US and now working within the Israeli banking system, I understand both systems in language, culture and process, and help bridge the gap for my clients, so that they feel comfortable and confident in their Israel purchase.
Moreover, I provide an American style and level of service, where I make myself accessible and available whenever needed. I understand what those coming from abroad are concerned about, and I know where they are coming from. And using the connections and relationships I have built with all of the banks, I work to get my clients the best deal for their situation.