Thinking of buying a property in Israel and wondering what banks are actually looking at before approving your mortgage? Mortgage approval in Israel involves specific steps and criteria, which can seem daunting at first. Let’s simplify it all so you’ll be fully prepared when you walk into an Israeli bank.
Valuing the Property: Understanding Collateral
The very first step an Israeli bank takes when reviewing your mortgage application is assessing the value of the property you’re purchasing. This is crucial for the bank because your property acts as security (or collateral) for the mortgage loan.
Who Evaluates Property Value in Israel?
In Israel, property valuation is carried out by professional appraisers, known locally as “shamai.” These appraisers are licensed experts tasked with determining the fair market value of your home based on current market conditions, recent sales in your neighborhood, and the condition of your property.
For instance, if you’re buying an apartment in Tel Aviv priced at around 2 million shekels and seeking a loan of approximately 1.5 million shekels, the bank’s appraiser will confirm whether the apartment genuinely justifies its asking price. This ensures the bank can recover the loan amount if necessary.
Assessing Your Financial Capability
The next vital factor that Israeli banks evaluate—and where applicants often encounter challenges—is your financial stability and your ability to repay the mortgage.
Your Debt-to-Income (DTI) Ratio Explained
In Israel, banks closely review your “income minus expenses” to determine your disposable monthly income. They focus specifically on regular, fixed expenses—not one-off expenditures like vacations or occasional purchases.
Here’s how Israeli banks calculate your disposable income:
- Monthly Income: Your total earnings from employment, self-employment, or other steady income sources.
- Fixed Expenses: These include other mortgage repayments, personal loans, car loans, credit card debt, alimony, and any ongoing monthly commitments.
Banks then subtract your fixed monthly expenses from your monthly income to see what’s left for mortgage repayments.
Why the DTI Ratio Matters to Israeli Banks
Let’s say your monthly income is approximately 15,000 shekels, and after subtracting your fixed expenses (e.g., existing loan repayments of 5,000 shekels), your disposable income is 10,000 shekels. If your potential mortgage repayment is around 7,000 shekels monthly, the bank might approve your loan. However, if repayments surpass your disposable income significantly, the bank could deny your application. Typically, banks in Israel prefer mortgage repayments not to exceed about 30-40% of your disposable monthly income.
Tips for Increasing Your Mortgage Approval Chances in Israel
Here are practical steps to enhance your likelihood of mortgage approval:
- Increase your down payment: A higher down payment lowers monthly repayments and improves your loan terms.
- Reduce existing debts: Paying off current loans or debts before applying strengthens your financial profile.
- Maintain a solid credit rating: Consistently paying bills on time and keeping credit card balances manageable demonstrates financial reliability.
Too Long; Didn’t Read (TL;DR)
- Israeli banks verify property value via a licensed appraiser (“shamai”).
- Banks calculate your disposable income by subtracting fixed monthly expenses from monthly income.
- Mortgage repayments typically should not exceed 30-40% of your disposable income.
- To improve approval odds, consider increasing your down payment, reducing debts, and maintaining a good credit rating.
Understanding these specific requirements of Israeli banks will significantly ease your mortgage approval journey!