The Bank of Israel imposes various restrictions on the banks, regarding the amount of mortgage amounts in relation to property prices. These restrictions state that it is not possible to receive the full mortgage, according to the value of the property. Buying a property requires substantial equity, but what do you do if you don’t have the minimum equity? It turns out that there are several solutions that can make it possible to buy a property without a down payment. But note that this is a move that can be dangerous if you don’t prepare for it properly.
What equity does the Bank of Israel require?
Before we understand how you can buy a property without a down payment, some data. So how much equity does the Bank of Israel define, for the purchase of property in Israel? It depends on the property category and the purchase category:
- First residential apartment – when you are interested in purchasing a regular, first residential apartment, the Bank of Israel imposes an equity condition of approximately 25 percent of the property’s value. For example, you wanted to buy an apartment for about NIS 1.6 million, bring at least NIS 400,000 from home.
- Changing an apartment – if you are interested in a mortgage to change an apartment (mortgage for housing improvers), the minimum equity before the Bank of Israel is 30 percent. This means that in the example we gave, you will have to bring from home 480 thousand NIS (at least).
- Apartment for investment – the Bank of Israel wants to make it more difficult to buy apartments for investment. This is his way of cooling housing prices. Because of this, the percentage of funding for investors currently stands at fifty percent. This means that in order to buy an apartment for 1.6 million NIS, you will have to bring at least 800 thousand NIS from home.
Raising a mortgage exempt from Bank of Israel requirements
After we started with the hard news, we will move on to the ways in which it is possible to bypass the restrictions of the Bank of Israel, completely legally. In Israel, there are non-banking entities that are outside the scope of the Bank of Israel’s authority. These are, for example, provident funds and pension funds and the major insurance companies. These entities were approved several years ago to enter the mortgage sector. The rules of the Capital Authority and the Securities Authority apply to these bodies, so the Bank of Israel’s equity restrictions have no weight here.
It is important to note that these bodies operate under their own regulation, therefore they give mortgages in a process similar to the banking process. They allow mortgages, but not for everyone and based on a personal financial due diligence. Those who receive approval for a mortgage in these cases, will be able to reach a much higher financing percentage than is available with the banking system. It is not necessarily 100 percent financing, but it is possible to get an apartment with relatively low equity.
A property without equity, combined with other sources of financing
Even for those who want a bank mortgage, because the interest rates are more comfortable compared to non-bank financing sources, there is a way to deal with the current capital requirements. Officially, the equity required to be seen in banks should not come from loans and other funding sources. At the same time, from many reports from borrowers in recent years, it becomes clear that the banks are not too careful to check this. In other words, someone who takes a loan at one bank, and declares it as equity with another bank, can actually reach a financing percentage of 100 percent or close to it.
Without equity – rules of caution that you should know
Now note that even if you have the option to buy a property without equity, it does not mean that you should run there with your eyes closed. Pay attention to some cautionary rules:
- Relying on loans only means you are buying a property with high financing. It can be good, it can be dangerous.
- If the repayment rate of all the loans combined will be higher than your ability to repay over time, this could be a problem.
- A rule of thumb recommended by experienced mortgage advisors is the rule of thirds. If your mortgage repayment plus the rest of the loans for the purchase of the conference exceeds one-third of the income, this is a dangerous situation. This is assuming that the family income is an average income and does not exceed the average by much.
The bottom line, it is possible to get a property without a down payment. At the same time, one must act carefully and, if necessary, consult an objective professional who deals with mortgage counseling or financial counseling for the family.