Every mortgage file presents a unique set of challenges and demands and - as a mortgage broker - I can never know at the start of the process where the particular challenge will lie.
Sometimes the hard part is helping the client to show the bank sufficient income. Other times the deal involves a difficult property. Occasionally the processing needs to be done at breakneck speed.
And sometimes I get a file with all of the above - and more!
Below is a case study of such a file. Specific details have been altered in order to preserve confidentiality, but otherwise it’s a fascinating story of relentlessly overcoming one obstacle after another.
Obstacle 1: Proving income
The client wants to buy a property in Modiin for 5.3m nis and needs a 4m nis mortgage. The couple are recent Olim from the UK who own 3-4 successful UK based companies.
In order to stay tax efficient the husband and wife take only a minimal salary and retain as much profit in the UK company as possible.
All their income documents are in English, and they show only minimal personal income on their UK tax returns. Now that they live in Israel they plan to take tax-free dividends from their UK companies, but they have no income history of having taken such dividends, as they only made Aliya recently.
So how can I get them approved for 4m nis?
In cases like this, the key to the puzzle lies in getting a letter from their UK accountant. Once the accountant confirmed that they would be taking regular dividends from their companies - which are subject to a 10 year UK Aliyah income tax exemption - the bank eventually approved them for the full amount requested, despite their low personal income history.
Obstacle 2 - Appraisal Value
The client did not have the ability to put more than 25% into the deal. But in Israel, the lending bank is allowed to give up to 75% of either the purchase price or the appraisal value, the lower of the two figures.
So if he bought the property for 5.3m nis and the appraiser values it at 4.8m nis (which by the way is common, as appraisers are sometimes overly conservative!), he will only get 3.6m nis and not the 4m nis he needs.
The appraisal is not required by the bank until long after the purchase contract is signed. So how can the client enter the deal with such a large risk?
The answer to this one is actually very simple - get the appraisal done before signing a contract.
Although it is more expensive to get an appraisal done at this stage - and it can sometimes take more time than the seller has patience for - it is really a non-negotiable requirement when asking for 75% financing. And anyway, sometimes a low appraisal value can occasionally be used as leverage to get the seller to drop his price - in such cases the cost of the appraisal report pays for itself many times over!
In our case the appraiser wanted to mark the value down by 250,000 nis, but after I connected him to the realtor who showed him other comparable deals that he might have missed - he promised us that he would value the property at 5.3m nis once we showed him a signed purchase agreement on the property. The additional data point of seeing someone pay 5.3m nis for the apartment would be enough to help change the appraiser’s mind!
The contract was signed and the appraiser was as good as his word.
There were multiple twists and turns to get the bank to approve the appraiser’s report - as they prefer to tell you which specific appraisers to use - but thankfully we won that battle too!
Obstacle 3 - A Super Short Payment Schedule
After some protracted negotiations, the buyers and sellers are now ready to sign a contract, but because things have schlepped so much now the seller wants the whole deal completed within 3 weeks. I always tell my clients to leave 6-8 weeks between signing a purchase contract, but sometimes we don’t have that luxury! What should we do?
Because we did our homework properly by securing a pre-approval and appraisal before the signing, 3 weeks is a stressful but doable time-frame if everyone plays their role in a timely fashion.
After a conference call with both sides lawyers, all mortgage security papers were scanned and couriered across the country, and all liens and charges at the land registry and mortgage registry secured in double time.
I set the clients up with an English speaking insurance broker who quickly guided the clients through the insurance process, and we even found time to get them a waiver on the life insurance requirement, by providing the bank with their UK insurance policies.
Obstacle 4 - The Wife Gets Sick
We are now at the home straight and all we need to do is sign the clients on the loan agreement and send the file to final examination and release. Then disaster strikes. The wife gets sick. We hope she’ll get better quickly, but we don’t have time to wait for that!.
We get a local notary to witness - from a distance - the clients signing power of attorney over to me, enabling me to sign the loan file on their behalf. This doesn’t work at every bank, but because I knew that the husband regularly travels back to the UK on business, I deliberately chose a bank where a POA would be accepted. Little did I know that we’d end up needing the POA because of the wife, not the husband!
It was a crazy ride and not every file is like this, but the advantage of having a mortgage broker in your corner during a process like this is hard to overstate. You never know when you need someone to work a little magic!