How The Mortgage Process In Israel Works - For Olim
Mortgage banks need to assess your income history before they can approve you for a loan. But how does an Israeli bank handle the income history of an Oleh who has only recently started working in Israel, or who still earns money from overseas sources? And how do they assess the income of a foreign resident who has not yet made Aliyah?
Some people think that you should just walk into a local Israeli branch and submit a mortgage application directly, or they get introduced to a friend-of-a-friend who works in an Israeli mortgage bank.
But the vast majority of mortgage bankers have no experience handling overseas income and working with them can result in incomplete advice, bad advice, and even wrong advice. It also can be the start of a long and confusing process with unpleasant surprises and profound financial implications.
This wouldn’t be so bad if mortgage bankers would be honest about the limits of their knowledge and experience. But many times a mortgage banker will say ‘this is the way to do it’, when what they really mean is ‘I only know one way to help you - so let’s do it my way’.
Below are the 7 most important things you need to know as an Oleh or someone with foreign income:
1. Israeli Banks Are Not All Created Equal
Some banks have a lot of experience underwriting loans based on foreign income, but some have only limited abilities to do so, and some just can’t handle it at all. Make sure you are speaking to a bank - and a banker - who has done this many times before. If your banker does not speak English proficiently then that probably means they have limited experience handling foreign income, so ask to be transferred to someone else.
2. You Don’t Need To Live In Israel To Get A Mortgage
Generally speaking, Israeli banks certainly ARE able to lend to foreign residents based on foreign income. Although there are multiple advantages to only buying after making Aliyah, this is not always the best course of action. Many times the financially smarter play is to buy and borrow as a foreign resident.
3. What To Expect As An Oleh
Don’t worry about having foreign income or limited work experience in Israel. There are major banks in Israel that know how to underwrite loans based on foreign income. Even if you are no longer working abroad your former overseas income can be used to provide context for your lack of Israeli work experience.
4. Show Your Last 2 Years Of Income History
The banks want to assess your net income over the last 2 years. The best way to document this is by showing them your two most recent tax returns. For UK salaried employees this means showing two P60s, and for the self-employed it means showing two years of self-assessment tax reports (SA100). Passive income from rental income or capital gains can also be included as valid income sources. Because tax returns only show last year’s income but not this year’s income, it is often necessary to also provide recent pay stubs or an accountant’s letter to estimate this year’s income.
5. Pre-Aliyah Income VS. Post-Aliyah Income
If you take the mortgage before Aliyah then the bank assesses your income based on your current income level and won’t overly worry about your income changing after Aliyah.
If you are looking to borrow immediately after Aliyah, showing them an employment contract or your first pay stub should be sufficient to provide a base-line income that will help you to secure pre-approval.
6. Aliyah Affects How Much You Can Borrow
Israeli first-time buyers are able to obtain 75% financing, whereas foreign residents are officially limited to 50% financing. However - as with everything in the Israeli banking world - the devil is in the details. An Israeli first-time buyer is defined as someone who primarily resides in Israel, so even a non-Israeli citizen who currently lives in Israel is eligible for 75% financing. Additionally, if you can prove that the Jewish Agency has approved you for Aliya then you can get 75% financing even if you currently reside abroad.
7. Get Pre-Approved ASAP
Property deals in Israel move fast and sellers do not always have abundant patience, so you could find yourself under pressure to sign a purchase agreement before you have a mortgage approval in place.
A good mortgage broker can help you work out the specifics of how much you can borrow and thereby assess what home you can afford.
Securing pre-approval before you find the property can give you the peace of mind to make a confident offer, secure in the knowledge that the bank will partner with you in the deal.