Israeli Banks Offer Different Loan Options for Home Sellers and Investors
Israeli banks are differentiating loan options for individuals looking to upgrade their homes versus investors purchasing additional properties, based on how existing properties are leveraged. Home upgraders who sell their current residence can receive up to 70% financing on a new purchase, along with a bridging loan of up to 50% on either the existing or new property, whichever is lower. This bridging loan acts as a temporary financial cushion, typically lasting up to 18 months for resale homes or one year after occupancy for new constructions, and is repaid upon the sale of the old home.
Investors who retain both properties face stricter limits, with banks capping loans at 50% of the value of either the existing or newly purchased property, whichever is less. For example, if an existing home is worth NIS 1 million and a new one is purchased for NIS 2 million, a home improver might get a NIS 500,000 bridging loan on the old home and a NIS 1.4 million mortgage on the new one. An investor, however, would be limited to a 50% loan on the lower-valued property.
For those exceeding bank limits or seeking higher leverage, non-bank entities offer loans, often at around 12% interest, for up to 70% of a property's value. Parents can also leverage their homes to provide down payments for their children, receiving a loan of up to 50% for any purpose, while their children can then secure up to 75% financing as first-time buyers. This creates a combined financial risk across two generations.
The valuation of properties is crucial, as banks base financing on the lower of the contract price or the appraised value. Delays in selling an existing home can have significant consequences, potentially reclassifying the purchase as a second home, reducing financing to 50%, and incurring purchase taxes. The interest on bridging loans accrues monthly, and borrowers must demonstrate the ability to manage double payments, either from rent or existing mortgages, for at least six months.
