Finding the Money for Your New Home
It’s no secret that real estate in Israel is quite expensive. The government owns most of the land and constricts supply by making only small amounts of it available, and through complicated zoning and legal processes involved before land can be built upon.
Yet we must remember that it is HaShem who is willing that the government does what it does, that the underwriting rules are as they are, and that real estate prices are high. It’s all from HaShem. Our job is to pray and to act with faith that we can overcome the barriers to buying a home in Israel. It may happen right away, or only after a number of years, but believe in HaShem and don’t stop praying.
We encourage you to make a copy of this Google Sheet to help you organize your work.
Determine How Much You Need and How Much You Have
You can use our free Israel home-buying calculator to determine how much money you will need to buy an apartment.
Your next step is to figure out how much you have. You can do this by making a list of your liquid and easily saleable assets, and their value.
Feel free to make a copy of this Google Sheet and get to work!
Seller Financing
In the United States, many real estate transactions are assisted by “seller financing.” This is where the seller lends the buyer money towards the down payment.
While this arrangement is almost unheard of in Israel, it can be done. I know because I did it!
Early on in our home-buying process, we looked at a nice cottage on a fantastic street. We couldn’t afford the down payment, so we offered the seller as follows: 10 years of 10,000 NIS/month payments to make our down payment, followed by the balance of the funds. If we were to fail to pay the full balance of the price, the seller would keep most of the money that had been paid as rent. And, we would be responsible for repairs.
I was shocked that the buyer was willing to accept these terms as they are incredibly generous and interest free. In the end, we didn’t buy the home for other reasons.
One of those reasons is that banks won’t agree to release a mortgage that will only be executed 10 years from now, meaning that we would have had to take on the risk of completing ten years of payment but for some unpredictable reason being unable to secure a mortgage for the rest. But the fact is that here was a buyer willing to accept unconventional terms on a desirable property.
When we finally did buy our home, it was with less dramatic seller financing. The appraisal came in about 245,000 NIS lower than the sale price and we needed 115,000 NIS to complete our down payment.
The seller had lots of equity in the home and was only taking out a modest mortgage to finance the new home he was moving into.
We agreed that the seller would take out a mortgage for 115,000 NIS on his new home in lieu of receiving the 115,000 NIS that we couldn’t afford. We would sign a loan agreement stating that we had borrowed 115,000 NIS from the seller, and provide him with a lien on our new property.
The loan agreement required us to make 60 monthly payments of 2,000 NIS each to the seller. At the end of 60 months, we would perform a calculation to find out how much money the seller had paid the bank in interest for the loan, and we would make a final settlement to ensure that his interest was all paid-for.
In this fashion, the seller got the price he wanted and the money he needed to buy his new home. And we got additional financing that our bank wouldn’t provide.
While our lawyer had never heard of such an arrangement, it was a fairly simple matter for our lawyer and the seller’s lawyer to work out the fine points contractually to make this happen.
One reason why this works is that the banks release your mortgage when they receive a letter from the seller’s lawyer stating that the down payment has been received.
We paid most of the down payment in cash, and the rest by assuming a loan for 115,000 NIS, and the seller’s lawyer then informed the bank that the down payment had been received. It was as simple as that.
Now, you may wonder why a seller would offer seller financing. One reason is simply that they can make a handsome return. Israeli savings accounts provide insultingly low interest rates. Bond returns are low, and the stock market is risky.
Therefore, your seller may find it attractive to lend you money at an interest he cannot obtain elsewhere such as 5% or 7% (or higher… it all depends on negotiation). The loan can be secured by a contract and a lien on your property, which allows the lender to force a sale of the property in the event of non-payment.
A seller may also agree to offer financing in exchange for getting the price they want. The line people use in America is, “you name the price, I will set the terms.”
Of course, you have to carefully think through whether or not you want to make use of seller financing because a lien does truly enforce your repayment. That’s why it’s important to understand your income, your expenses, and what you can afford. It’s also important to ensure the payment terms are truly affordable.
Family, Friends, and Banks
Many people rely on help from family or friends in the form of gifts or loans in order to make a down payment.
Additionally, you may be able to take out a personal loan (or loans) from a bank or other lending source. Loans are often available in amounts ranging up to 100,000 NIS with interest rates around prime + 2. Just be sure you can truly handle the payments and that you will still have enough income to qualify for your mortgage.
To do this, you’ll want to calculate your average monthly income and expenditures and do the math to see if you can afford extra debt payments on top of your mortgage.
You can make a copy of our Google Sheet and list out people who may be willing to help, and figure out how much debt you can handle.
Increase Your Income
Through prayer and action, you may be able to increase your income or find creative ways to make money.
Options may include:
- Getting a higher-paid job
- Earning a degree
- Going into tech (salaries are much higher in tech)
- Negotiating a raise
- Improving your value to the workplace by learning in-demand skills
- Starting a business
If you’re not sure what to do, start reading books about investing, entrepreneurship, sales, and the like. There are so many valuable titles available out there to read.
We live in a world of abundance and possibilities, sustained by endless bounty descending from the higher worlds into ours.