Mortgages for foreign residents: the Essentials

Currently, purchases by foreign residents have dramatically declined, with the Chief Economist at Israel’s Ministry of Finance reporting a mere 50 apartments bought by foreign residents in April 2020

 (photo credit: FREEPIK.COM)
(photo credit: FREEPIK.COM)
Starting in the mid-2000s, non-Israeli Jews began buying apartments in Israel in ever-greater numbers. This trend, which began even before the financial crisis of 2007–2008, stemmed among other things from low mortgage interest and financing rates, high Return On Equity for housing in Israel, a diverting of capital from the tanked stock markets, and rising Antisemitism, which drove overseas Jews to seek a safety net in Israel.

Currently, purchases by foreign residents have dramatically declined, with the Chief Economist at Israel’s Ministry of Finance reporting a mere 50 apartments bought by foreign residents in April 2020 – a 65% decline compared to the previous April. The reasons may include tougher financing terms, higher apartment prices (coupled with a predicted future downturn), better returns on real estate overseas, and negative government sentiment towards real estate investors. Nevertheless, foreign residents continue to seek out real estate investments in Israel.

Since obtaining a mortgage isn’t as straightforward for foreign residents as it is for Israeli citizens, knowing the legal rights and the correct application process can go a long way towards easing the process.

A FOREIGN RESIDENT is defined as any Jew living overseas whose income is generated overseas, including Israelis who’ve permanently relocated overseas. Israelis who’ve relocated for a limited period may ask the banks to define them as Israeli citizens – the advantage of which is obvious from the following.

MORTGAGES FOR FOREIGN RESIDENTS ARE FINANCED ONLY UP TO 50%. The applicant must put up 50% equity – whether or not it’s their only apartment (in Israel or abroad). While this isn’t set by law, it is the bank standard in Israel. There may be special exceptions, but for the most part, those are the financing terms adopted by the banks.

FOREIGN RESIDENTS MAY OPT FOR ANY MORTGAGE PLAN available to Israelis, as per the bank’s discretion, and may also ask for the entire mortgage plan to be in a foreign currency. Israeli banks currently offer USD and EUR plans, as well as some YEN plans. Due to Bank of Israel restrictions, regular Israeli customers cannot opt for a foreign currency plan, as these are limited to no more than a third of the mortgage.

A mortgage calculator can help to check the effect of the mortgage composition and the interest rates offered by each plan on the monthly and overall payments.

TO RECEIVE PRE-APPROVAL FROM THE BANK, FOREIGN RESIDENTS MUST PROVIDE documents detailing the applicants’ details, their income, and the apartment being purchased. The income records required differ by country of origin, as do the names of the various documents – but the general idea remains the same.

Example: A foreign resident from the US would be required to submit a passport, an Israeli driver’s license or ID (if any), a property deed for the apartment being purchased, 3-4 recent paychecks, form 1040 (annual income summary), bank statements going back 3 months, a credit score, and a credit report.

Additionally, most banks require an Israeli contact (normally a relative) to whom they can address letters, notices, etc.

MORTGAGE APPLICATIONS ARE GENERALLY SUBMITTED AT SELECTED BANK BRANCHES that specialize in the languages and formalities specific to foreign residents. The application can also be made overseas, but the customer must be present in Israel to sign the mortgage papers and perform related tasks.

THE PROCESS CAN BE STREAMLINED by hiring a consultant who specializes in foreign resident mortgages. A professional familiar with the relevant procedures and regulations will be able to handle the case faster and smoother than a resident who lives overseas.

Despite the relative downturn in apartment purchases by foreign residents, those who wish to invest should start by having the pertinent information. Hopefully this article has provided some of the tools needed to make a decision.