Mortgage Guide: Key Questions for First-Time Homebuyers
Translated & summarized from Ynet by baba
Sharon Ben Yehuda, head of mortgages at Mizrahi Tefahot Bank, provides guidance for first-time homebuyers on navigating the mortgage process. Key advice includes understanding personal financial needs, regulatory limits on loan amounts and repayment capacity, choosing appropriate mortgage tracks, and the importance of preliminary bank approval before signing contracts.
The story in 5 lines · by baba
- Buyers must assess personal needs and financial capacity for mortgages.
- Regulatory limits exist on loan-to-value ratios and repayment capacity.
- Buyers need separate funds for taxes, fees, and other purchase costs.
- Choosing between stable or flexible mortgage repayment plans is key.
- Preliminary bank approval is essential before signing a purchase contract.
A new podcast episode from "On the Way Home," a series aimed at simplifying the first-time home-buying process, features Sharon Ben Yehuda, head of the mortgage division at Mizrahi Tefahot Bank. She offers crucial advice for navigating the significant financial decision of taking out a mortgage.
Ben Yehuda emphasizes that the initial steps involve identifying the desired property and determining if it's for living or investment, followed by assessing personal finances. She highlights regulatory limits on loan amounts, which vary based on whether the buyer owns other properties. For first-time buyers, banks can lend up to 75% of the property value. This decreases to 70% for those upgrading from a previous home and 50% for investors. Additionally, banks assess the borrower's ability to repay, ensuring the mortgage payment does not exceed 40% of their disposable income after other obligations. Buyers must also account for additional costs like purchase tax, legal fees, and broker commissions, which are separate from the property price and require separate funds.
When considering a mortgage, Ben Yehuda advises potential buyers to first determine their maximum affordable monthly payment and aim for slightly less, cautioning against drastically altering living habits. Obtaining preliminary approval from the bank is crucial before signing a contract, as it signifies the bank's commitment to financing the deal, provided the borrower's declarations are accurate.
Choosing the right mortgage plan involves balancing a stable monthly payment with repayment flexibility. Options range from fixed-rate, non-indexed loans (KALAT), offering stability but with early repayment penalties, to the more volatile Prime Rate, which fluctuates with interest rate changes but has no early repayment fees. Variable rate options offer a middle ground. Regulations mandate that at least one-third of the loan must have a fixed interest rate, with the remainder customizable.
Ben Yehuda stresses that the mortgage market is competitive, encouraging buyers to prioritize their personal needs and risk tolerance over what others have secured. She also discusses financing schemes like "20/80" and "10/90," which benefit developers, buyers, and banks by deferring the financial burden on the buyer. These schemes require the bank to conduct a thorough underwriting process upfront to ensure the buyer has future funding sources.
She also explains mortgage refinancing as a tool to adapt to changing market conditions or personal circumstances, noting it can often be done quickly via phone. Her ultimate advice for first-time buyers is to focus on personal needs rather than external influences, ensuring the dream of homeownership doesn't become a nightmare. She encourages open communication with the bank about any difficulties, assuring that banks aim to help clients.