Umtb mortgage ebook_may2013_apt


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Umtb mortgage ebook_may2013_apt

  1. 1. The Complete A-Z Guide Of Buying Property In Israel Search | Contract | Legal | Mortgage | Moving
  2. 2. Welcome Home! Mizrahi-Tefahot Bank (UMTB) is one of the largest banks in Israel and operates some 166 branches throughout Israel and in major financial centres around the world, through which it provides a complete spectrum of financial products and services, with world class levels of professionalism. Multi-Currency When it comes to mortgages we know what we are doing. Mizrahi-Tefahot Bank (UMTB) is Israel's No.1 Mortgage bank and provides more than 30% of mortgages taken out in Israel. We know that buying a new home can be a stressful project and it is made especially so when you are buying a new home overseas. There are many things that seem complicated and daunting and this comprehensive guide aims to help you understand the process. This guide helps you through the whole procedure from searching for a new home, to signing the contract, dealing with the legal aspects, getting your mortgage and of course – moving day. Plus there is a section on how to rent out and manage your property from overseas and a glossary of terms you will come across. Our team of highly experienced people who all speak English are ready to help you get the mortgage you need and welcome you to your new home in Israel. We’d love to hear your feedback on this guide so get in contact with us here.
  3. 3. Contents Page (Click on the chapters below) Chapter One - Search Chapter Two – Contract Chapter Three - Mortgage Multi-Currency Chapter Four – Moving Day Chapter Five - Property Management Chapter Six – Glossary of Terms
  5. 5. What’s Better: Purchasing or Renting a Flat? To invest in purchasing a flat, or to continue to live in a rental? This is a complex question that keeps coming up in western society. This question does not have one uniform answer. This is a personal decision that requires not only careful financial consideration but is also influenced by personal preference. Purchasing a Flat: Pros and Cons The main advantage: a feeling of security with the existence of your own private corner – and everything that entails. The main disadvantage: the long-term financial obligation. With the assumption that purchasing a flat requires obtaining a mortgage, the bank is the real owner; the flat is charged to the bank and there is no option, for example, to sell it without the bank’s approval. On the other hand, after paying off your mortgage you have a property that you own. Multi-Currency Instead of paying rent you can purchase a flat and pay the same amount as a mortgage payment. On the other hand, the mortgage payments can be higher than the monthly rental payments, creating a financial burden. A pipe in the wall burst? The ceiling is starting to peel? The water heater stopped working? The building committee decided to renovate the building? The owners, meaning you, are required to make these payments. In the flat that you own, you are able to invest in the building and its contents, with the goal of adapting it to your personal taste. The importance of this is that you can fulfill the dream of purchasing a flat and investing in your private property. However, there are also expenses that come with this.
  6. 6. Recession? Were you fired or forced to take a salary cut? The mortgage still has to be paid. Purchasing a flat requires prior financial planning and sometimes even a change to your priorities, meaning building a new monthly budget. Excluding the payment for the flat itself, there are additional payments to be made: fees for the lawyer, real estate agent’s fees, various taxes and levies, such as purchase tax and betterment levies. Obtaining a mortgage requires purchasing mortgage insurance – an integrated policy which includes life insurance and building insurance. Even if the flat is not purchased using a mortgage, it must still be insured with proper insurance, meaning – additional payment. Finding opportunities: buying a cheap flat in a developing area can be considered a worthwhile investment over time. Even a recession or stagnation in the real estate Multi-Currency industry, that lead to a situation of “a buyer’s market” and a reduction in the interest on your mortgage present an opportunity to buy a flat at a discounted price. You can rent out the flat that you buy, and use the rental fees to cover all or part of the mortgage payments. Renting a Flat: Pros and Cons The main advantage: freedom – the option to leave at any time, almost immediately, to another flat or area. The main disadvantage: sense of impermanence and insecurity. Renting does not offer all of the rights to the property, except for living in it (subject to the rental agreement). The flat was and remains the property of someone else. Recession? Fired? You can move to a cheaper flat or return to live with your parents.
  7. 7. A pipe burst in the wall? The water heater isn’t working? The building committee decided to renovate the building? The owners pay for any repair, renovation or replacement that is required. Every so often you can switch to a different flat, and change the neighborhood in which you live, get to know new areas and people, alter the “atmosphere” and change your rental payments (higher or lower). On the other hand, moving flats takes time and entails additional significant expenses. There is a smaller incentive to invest in a rented flat than in a flat that you own, mainly in regards to the building. This can mean that the flat is less “personal” but also requires fewer expenses. Renting a flat does not require a concentration of all of your financial resources or a change in your priorities. All that is required is maintaining the required security and Multi-Currency making the monthly rental payments. Excluding the rental fees, renting a flat does not require payment of taxes and other levies. The possible additional payments are: real estate fees and lawyer’s fees. Renting a flat does not require the payment of an insurance policy. A shortage of flats for rent, mainly in the desired areas, causes an increase in rental fees. Are you Prepared to Purchase a New Flat? Buying a flat is an important step that requires a lot of deliberation and decisions that are not so simple. However, financial planning for purchasing a flat is a central step in the decision process – but not the only one. Many studies show that people are deterred from purchasing a flat not only by financial and economic considerations, but also to a certain extent by personal and psychological reasons.
  8. 8. So before making the decision regarding purchasing a flat, here are a few points to consider, and questions to ask yourself: Our financial sources are limited. Is it better to rent a cheaper flat and to save equity for buying one? Are we prepared for the financial obligation that comes with purchasing a flat? Is this the right time to buy a flat? Is the market growing or receding? What are the current trends in the real estate market and what is the outlook for the future? Should we buy now or wait? Beyond the finances, will the financial obligations cause us happiness and a sense of security, or maybe stress and unease? Do we actually want to buy a flat or maybe the feeling is coming from social pressures – Multi-Currency from our parents that want us to be “settled” or from work where all of our friends already own flats? Purchasing a flat requires a change in priorities and formulating a new monthly budget. What will we be willing to give up on in order to purchase a flat? Will buying a flat improve our quality of life or harm it? Do we see ourselves living in the area where the flat is located for several years, or maybe forever? Is the area where the flat is located appropriate for raising children? Are there employment opportunities in the area if we want to live where we work? Is the flat located in an area that is accessible to transportation? How far is it to parents, relatives, friends? In a rental flat, all of the repairs and renovations are the responsibility of the owners. Purchasing a flat makes us the owners. Are we ready for the responsibility and expenses that come with that?
  9. 9. Our personal equity is enough for us to buy a flat in an outlying community. Would it be better to wait until we have more money to enable us to buy in a more central location? The value of flats in the area we are interested in is rising. Maybe we shouldn’t wait but rather work harder to get the equity to purchase the flat? Purchasing a flat obligates us to “break into” our savings. Is it worthwhile financially? Maybe we should wait and avoid paying interest or fines? What is more important to us – a big flat that leaves us a small budget for furniture and other things or a smaller place that allows us to have more money for decorating? Are we personally ready for the processes required of purchasing a flat, such as hiring a lawyer to do the “legwork” between the various authorities, etc.? Since purchasing a flat is an important process from a personal and financial standpoint it is important to look into these points, to deliberate and seriously discuss them. It is recommended to ask for help from relatives, friends or buyers who have already bought a Multi-Currency flat and can offer you advice based on experiences. Another helpful tip is to prepare a pros and cons list: more than once when the points on one side or the other are written down, the decision is much easier to make. Financial Planning for Obtaining a Mortgage Purchasing a flat is an important step in all of our lives that requires important deliberation and decisions to be made. We recommend that, as an initial step for your first flat, you prepare a financial plan to help you make the decision regarding obtaining a loan. The financial plan places significance in checking the expenses required in purchasing a flat (evaluating the price of the flat and the expenses that come with purchasing it), the financial sources at your disposal and evaluating the expected income during the loan period. This data can help you in calculating the amount of the required loan, choosing the most appropriate loan type for you and in estimating your ability to make the monthly payments.
  10. 10. At Mizrahi Tefahot, we recommend that you make an initial financial plan and submit a request for a loan even before signing the purchase agreement. The submission of a loan request allows you to receive approval from the bank for the amount you need in advance and to receive an estimate regarding the financing that you can obtain for purchasing the flat. How to Make a Financial Plan Evaluating the value of the flat and the expenses required in purchasing it: you can search the flat prices throughout Israel over the last year and familiarize yourself with the different prices in different areas. It is recommended to also check the land tax rates (betterment tax, purchase tax, and sales tax), real estate agents fees, additional expenses such as maintenance, and fees for a lawyer handling the transaction, and more. Multi-Currency Checking the financial resources at your disposal for financing the purchase transaction, excluding the mortgage: sales fees from your old flat, help from parents, savings, loans from work or other places, and more. Evaluating future income: such as a provident fund or savings plans with future maturity. This evaluation will make it easier to choose a loan plan that is right for you and will allow you to repay the loan or reduce it. Calculation of the amount of the requested loan, including loan eligibility, must be determined from the cost amounts (the price of the flat and the accompanying expenses), less the total personal financing resources.
  11. 11. Calculating Monthly Payments The next step after evaluating the value of the flat and setting a loan amount is building the type of loan that is appropriate for your needs and financial capabilities (calculating the monthly payment). It is possible that after the financial planning, it became clear that it would be better to consider another purchase, a cheaper one, or to change the loan components and its terms (for example, to shorten or lengthen the loan). The Monthly Payment Amount in Relation to the Income Level The amount of monthly payment of the mortgage loan depends on several factors, such as the amount of net income in the household, the total set obligations of the household, the number of occupants, and more. The bank will only approve the loan and the monthly payment derived from it after Multi-Currency checking your personal data when submitting the request for a loan. Financial Planning for Purchasing a Flat Purchasing a flat is one of the most important and significant decisions in our lives. Whether referring to a new flat or a second hand one, this is an exciting process, which also has long-term financial significance. In fulfilling your dream of purchasing a flat, you should make a balanced and intelligent financial plan adjusted to your personal and financial needs, desires and abilities. Before you decide whether to purchase a flat one way or another, we have gathered a few important points that we recommend you consider for the financial planning process:
  12. 12. Evaluation Is the flat “worth” the price of its asking price? Whether the flat is being purchased to be lived in or as an investment, we recommend performing an evaluation of it by an appraiser. This service does require payment but it is important: it’s possible that the value of the flat is actually higher than the asking price and therefore it would be wise to buy it, or maybe the value does not justify the asking price. In such a case you can negotiate and try to bring down the price or find another flat that is more fitting to your personal taste and budget. Financial Obligation Purchasing a flat requires a concentration of financial resources: budgeting monies found Multi-Currency in various savings accounts, help from relatives and usually a mortgage or other loan. It is important to take into account that at least part of the savings “will disappear” towards investing in the flat and the monthly budget will need to include new expenses of the mortgage or loan payment. Therefore, you must plan your monthly budget in advance and check your financial capability to meet the new framework.
  13. 13. Mortgage Costs Purchasing a new flat requires, usually, obtaining a mortgage loan. This is a loan that the bank offers, with interest payments and subjecting the property as a guarantee and security for the repayment of the monies. The receipt of a mortgage requires additional payments, notably mortgage insurance, comprised of life insurance and property insurance. The monthly payment of the mortgage may include the monthly premium for the insurance policy. Therefore, it is recommended, together with a bank representative, to check your financial situation, the amount of mortgage required and the proportion of your income that you will be required to pay for the mortgage and the mortgage insurance. Additional Expenses Multi-Currency The financial plan needs to not only include the price of the property but also additional expenses required in the process, including fees for professionals (lawyer, accountant/tax consultant) and taxes (purchase tax and maybe even betterment levies). All of these expenses are accumulated as an integral sum which must be taken into account in the framework of the financial plan. Looking Ahead The financial plan must include an evaluation of possible future income, as well as large expenses that are expected. For example, income from a savings plan that will soon mature, or expenses for a new car bought in installments, a work promotion, the birth of another child, etc.
  14. 14. Future Expenses There is an understandable tendency to invest more efforts and resources into a flat that is owned by you and is your private property (as opposed to a rented flat for example), both in the building itself and its contents. Therefore, it is important that the financial plan will include at the outset a section relating to the required investment – renovations, a new kitchen, equipment for the flat, and more. Preliminary Advice There is nothing smarter than those with experience, they say. It is important that you use the knowledge accumulated by family and friends who have purchased flats after making your financial plan, and collect advice and tips for intelligent financial management. Multi-Currency To Buy a New or Second Hand Flat? Similar to the question of whether you should purchase or rent a flat, the following issue, which many people struggle with, is complex and significant: is it better to buy a flat from a building contractor or to purchase a second hand apartment? Purchasing a flat from a contractor as opposed to buying second hand is a decision that combines financial and personal considerations. Therefore, no one can definitively determine which of the options is preferable. However, there are several points you should consider in the matter that could help you in making the decision.
  15. 15. Buying a New Flat – Pros and Cons •The construction – buying a place from the contractor ensures a new building standard and new infrastructure. The significance: low risk of problems. On the other hand, new flats often have building issues that require fixing, even if they are at the expense of the contractor. •The building – a new building, mainly with a modern design and a lobby, garbage room and sometimes even communal areas such as a gym, meeting area or pool. •The size – generally, the rooms in a new flat are smaller in comparison to those found in a second hand place. •Warranty – buying a flat from the contractor includes a warranty to handle problems and issues regarding the construction. •The risk – a drawn-out economic Multi-Currency exposure to the contractor’s financial situation. The guarantees that are offered cannot be exercised in all cases and often require going to court. •The planning – in a new building it is easier to perform planning changes (for example, in the interior area), even based on the specifications of the contractor (for example, porcelain tiles or the kitchen). However, in some cases, the changes require payment. •The transfer – in a new flat, the building process could be delayed for a variety of reasons. This means delays in the transfer of ownership of the flat. •The rights – generally, with a new flat, the place is not registered in the Land Registry for a long period of time.
  16. 16. • The location – many of the new buildings are built in the suburbs or in developing areas. This means: transportation, social (for example, cultural institutions), educational (for example, parks and schools), and economic (e.g. malls) infrastructure does not yet exist or are in construction. On the other hand, the developing areas attract a younger population and relatively quick environmental development, as well as comprehensive services. • The environment – the new flat could be part of a construction project of a number of new buildings at the same time. Meaning: until the building process is completed in its entirety, you should expect damage to the general quality of life: noise hazards, dirt and lack of infrastructure. • Availability – building a new flat generally takes about a year to two years. • Impressions – if the new flat is still in the building process, you can only get an impression of what will look like from a demonstrational model or video, or through a model flat. Multi-Currency • Security – new buildings include a safe room and supports for resistance to earthquakes, as opposed to second hand places, most of which are located in older buildings without these facilities. • The elevator – new buildings have at least one elevator, which increases the value of the flat and improves your quality of life. • Parking – new buildings include private parking nearby and storage. • Promotions – deals, discounts and promotions offered from time to time by the contractors could decrease the price of the flat or offer buyers an upgrade of a technical detail.
  17. 17. Buying a Second Hand Flat – Pros and Cons • The construction – a relatively older building standard and infrastructure, larger chance of problems stemming from wear and tear. Meaning: there could be a need for expenses due to renovations. • The building – the design could be older. The buildings do not generally include communal areas such as a gym, meeting area or pool. • The area – in general, the rooms in a second hand flat are bigger than the rooms in newer apartments. • The warranty – buying a second hand flat does not come with a warranty. Therefore, it is recommended to hire a professional for a preliminary check of the property. Multi-Currency • The planning – any change in the flat requires renovations and additional expenses. • The transfer – since there are no building processes, there is a smaller chance of delays in the transfer of the flat to the new owners as defined in the purchase contract. • The rights – registered in the Land Registry. • The location – second hand flats are found in many areas of the cities such that you can check their proximity to educational, cultural and financial institutions. • The availability – a second hand flat will be given to the buyer immediately or within a few months. • The impression – for a second hand flat you are able to visit at various times of the day to get an impression of the situation. Similarly, you can visit the area to evaluate the noise in the area, learn about the parking situation, etc.
  18. 18. • The security – many of the older buildings are not able to withstand earthquakes and do not include safe rooms. • The elevator – the older the building, the lower are the chances of it having an elevator. The installation of an elevator requires the approval of the tenants as well as approvals from the relevant authorities, a significant financial expense and includes a building process that will disrupt the quality of life for a period of time. • The parking – the older the building is, the chance of nearby private parking decreases • Promotions – there are no deals, discounts or sales. The price of the flat is determined based on the bargaining between the buyers and the owners. We Liked Two Flats, How Do We Choose? You deliberated, checked out your financial capabilities and decided that this is the best Multi-Currency time to buy a flat. After looking at a few places, you settled on two. Now you are faced with a new decision: how to choose between two flats that appear to be equal. Since buying a flat is an important process that requires preparedness and financial planning, it is recommended to address the issue seriously and base the decision on rational criteria– both current and future. The following are several points to consider, to help you make your decision: The Evaluation The evaluation of the flat by a real estate appraiser can make the decision easier for you. This does require an expense; however, it provides an effective learning tool for you. Take this example: maybe you discovered that one of the flats is not “worth” its asking price or that its value is higher than the asking price and would therefore be more worthwhile than the other flat. The evaluation by an appraiser exposes you to the “good” and “weak” points of the flat, its value versus the asking price and could even help you in the negotiations for the final price.
  19. 19. Assessment of the Flat’s Status Does one of the flats require renovations? Renovations require additional payments, a certain disruption of your daily life and could even delay the transfer of the flat; therefore, this matter has significant weight when choosing a flat. Preparing a List of Reasons A helpful tip is to create a “pros” and “cons” list for each of the flats. Each list should relate to each flat as well as the environment in which they are located. For example, Flat A is more spacious and closer to your parents’ home, but farther from your work and there is a parking shortage in the area. Flat B is less expensive and closer Multi-Currency to a nice park, but requires renovations and the area barely has any nurseries or schools. Often, when the reasons for either side are written down clearly, it is easier to make your decision. Performing a Market Survey You should check the situation of the real estate market in the area where the two flats are located. Does the data show a rise in property value as a result of high demand or is there a large supply of apartments due to low demand? Talking with two or three real estate agents working in the two areas could offer you a general picture of the current real estate situation and even future trends.
  20. 20. Checking Out the Area You can’t decide between the two flats themselves? Maybe comparing their areas will help you make the decision. You should check the transportation (e.g. roads, bus lines and taxi stations), social (cultural centres), educational (schools and daycares) and economic (malls) infrastructure in the area. It is possible that you will discover that one area is more fitting to your needs over the second area, and it will be easier for you to make your decision. Current Needs How suitable is one of the flats for your current needs? For example, you are looking for a large kitchen with a quiet space to be used as an office – is one of the flats more fitting to these needs? Future Needs Is your first child on the way? You will need a room for the kids. Are you looking to plant Multi-Currency a garden in the future? You will need a proper ground area. It is recommended that you not only choose a flat that you will appreciate now, but also one based on future considerations. A Second Check It is recommended to visit each flat twice at different times. In the second visit you can check out details that you missed in the first visit - details which perhaps will “determine points” towards one of the properties. Visiting at different times is vital for learning the nature of the area based on the noise levels during the day and at night, the parking situation, activities in the area, etc. Another Set of Eyes Still difficult to decide between the flats? The additional opinion of a relative or friend could help you focus on the advantages and disadvantages needed to make the decision.
  22. 22. How to Purchase a Flat Wisely and What to Check in Advance Purchasing a Flat from a Contractor It is recommended to only buy a flat from contractors listed in the Contractor’s Registrar. It is vital that the contractor shows you a license that is valid for the current year. You should request this when commencing negotiations with him. Verify the contractor’s vouchers – ensure that the project account details and his name (as is printed on the payment vouchers provided to you by the contractor) match the register at the bank. It is important to ensure that all of the building operations are performed in accordance with the professional and financial classification of the contractor. It is important to perform – and not at the most basic level – an investigation regarding Multi-Currency the contractor. Check out houses that he has sold in the past and ensure that his financial position is strong and stable. Purchasing a Second-Hand Flat Legal check – in general, any attorney who is authorized to provide legal advice could provide services in this process. However, it is recommended to consult with an attorney who is knowledgeable and experienced in real estate to perform the legal check. The attorney must check, among other things, if there are any liens, foreclosures, or rights of any kind towards a third party that dwell on the property. Land Registry – in addition, the attorney must check the Land Registry for you in regards to the property. The Land Registry is the most important source for the regulation and inspection of legal rights of the seller to the property.
  23. 23. In general, real estate property is identified in the Land Registry by block, parcel and subparcel numbers (as opposed to address numbers). A seller that is not registered as the property owner – regarding a transaction where the seller has not yet been registered as the owner of the property rights, the attorney must check and verify that the seller has confirmation that all of the taxes applying to past transactions in connection with the flat were paid, and that he can produce all additional documents required concerning the registration. Multi-Currency
  25. 25. When you are ready to start thinking about a mortgage for your new home then there are a number of things you need to know and be aware of. The next few pages in this guide give you an outline on how to obtain a mortgage in foreign currency. IF YOU HAVE ANY QUESTIONS OR WANT TO TALK TO SOMEONE THEN YOU CAN CONTACT US BY CLICKING HERE. Multi-Currency
  26. 26. Types Of Loans The Bank provides many types of loans, for various purposes. This guide only covers foreign currency housing loans. A guide for other housing loans may be found on the Bank’s main website or at the Bank’s mortgage branches. The purposes of the loan A housing loan may be obtained from Bank funds for various purposes: • The purchase of a dwelling or other real estate asset (for example: plot of land, office, shop and the like); • The construction of a dwelling; • The renovation or expansion of a dwelling; • Other purposes, provided that a dwelling is charged to the Bank. The Bank will decide whether to grant a loan on the basis of its business considerations. Types of foreign currency loans Multi-Currency The Bank offers a wide range of loans in a range of currencies for you to choose from, with various types of interest and various repayment plans and for various loan terms (up to 20 years), as set forth below: Types of currency • US dollar • Sterling • Euro • Swiss francs • Canadian Dollar
  27. 27. Types Of Interest Floating interest Interest that varies during the loan term on pre-determined dates in accordance with a revision mechanism specified in advance in the loan agreement. This mechanism is made up of an external and objective base interest – the LIBOR interest, plus a fixed percentage in relation to the base interest. Fixed interest Interest that is determined on the date of granting the loan on the basis of IRS (interest rate swap), interest for half the requested loan term, plus a fixed percentage in relation to the base interest, the interest remaining fixed throughout the loan term (in the case of loans that are repayable in a lump sum, the base interest is on the basis of the IRS interest for the full requested loan term and in the case of loans in respect of which Multi-Currency repayment of the principal is deferred (“grace”), the base interest is determined on the basis of the IRS interest for half the requested loan term in which payments are actually intended to be made on account of the loan, plus the repayment deferment term (“grace period”)). Types Of Repayment • Monthly / quarterly repayments in a fixed amount (subject to interest changes, if any). • Repayments in accordance with an equal amortization schedule. • Lump sum repayment (for those anticipating a lump sum income in the future). • Deferment of repayment of the principal by up to two years. • These loans are provided in foreign currency. The debiting in respect of these loans is generally every three months (quarterly).
  28. 28. Conditions for obtaining a loan In order to obtain a loan, you must meet the criteria and conditions prescribed by the Bank in a number of categories: repayment ability, characteristics of the property to be charged and the guarantors for the loan. The Main Criteria Are As Follows: • Compliance with criteria of age, occupation and income, in order to ensure, to a high degree of probability, the loan’s repayment; • The loan shall be secured by way of a charge of a real estate asset; • The amount of the loan shall not exceed a certain percentage of the property’s value (in certain cases, credit insurance might be required); Multi-Currency • Guarantors – the requirement for guarantors and the number thereof shall be determined according to various criteria, such as the amount of the requested loan, the proposed property collateral and the like. In certain cases, guarantors will not be required; • Where there are previous loans: whether they have been free of any defaults in payment. These are the main criteria that are examined by the Bank, but they should be treated as general guidelines, since the Bank has other considerations when deciding whether or not to grant a loan. The Bank is therefore not obliged to grant a loan to all those who meet the above criteria; on the other hand, it might not always reject a loan application by someone who fails to meet them. In addition, for your information, the Bank is not obliged to give reasons for its decisions.
  29. 29. What must be done in order to obtain a loan in foreign currency? Receipt Of Information And Formulation Of A Financing Plan You can obtain information about the financing possibilities offered by the Bank and about the types of loans and their terms and conditions at the Bank’s branches and on the Bank’s website. This information will help you formulate the plan that is most suitable for you, having regard to the amount of the requested loan, the collateral that may be provided in favor of the Bank and the like. Submitting A Loan Application After you have received the required information and formulated the financing plan, you can submit a loan application. Multi-Currency The loan application includes information about the borrowers, the purposes of the loan and details of the property that will be charged in favor of the Bank. In the scope of the application you can also furnish details of the guarantors for the loan.
  30. 30. Furnishing Of Documents In order for the Bank to examine the loan application, you will need to furnish it with various documents as set forth below in this guide. You might also be required to furnish additional documents after the loan is approved in principle. You will generally meet with the Mortgage Center’s manager or one of the Bank’s representatives so that they may obtain additional information from you regarding your occupation, financial position and the like. The Loan Application’s Examination And Approval The Bank shall examine the application, the information and the documents and decide whether it is prepared to grant a loan, in what amount and on what terms and conditions. After the approval in principle, there might be changes in the final approval in light of Multi-Currency additional documents and/or information that are furnished to the Bank. The Bank shall advise the client in writing in the event of any change in the terms and conditions of the approval in principle. Signing Collateral Documents and a Loan Agreement If approval in principle is given for a loan, a loan agreement, together with its appendices, shall be executed with you and the guarantors (if any) and you shall furnish the necessary collateral documents and sign the Bank’s documents, insofar as required.
  31. 31. The Loan’s Execution After you have met all the requirements, the loan will be executed as agreed. At the time of executing a loan for purchase from a contractor, where the project under construction is being financed by a banking corporation (hereinafter referred to as “the financing bank”) pursuant to a construction loan agreement executed after 1st June 2008, for the purpose of the loan’s execution it is necessary to obtain a book of payment vouchers issued by the financing bank and provided by the contractor. The loan shall only be executed through payment vouchers. In other cases, a bank transfer is usually effected to the vendor’s account or to the contractor’s account or to the account of another entity, as agreed in advance. Occasionally, you will receive a cheque payable to the above entity. Guarantee And Other Collateral Pursuant To The Sale (Apartments) Law Multi-Currency The Sale (Apartments) (Assurance of Investments of Persons Acquiring Apartments) Law, 5735-1974 prohibits the vendor of a new apartment from obtaining more than 7% of the apartment’s price, unless it gives the apartment’s purchaser collateral aimed at securing his investments in the event of liquidation, bankruptcy, attachments, suspension of proceedings order and the like against the contractor or in circumstances in which there is an absolute impediment to delivering possession of the apartment. Such collateral might be in the form of a caution registered at the Land Registry in favor of the purchaser, a special bank guarantee or other collateral as provided in the Law. The Bank shall require a borrower who is purchasing a new apartment to present it with proof that he has received such collateral or that he has received an undertaking to furnish it.
  32. 32. The Bank may also demand that a guarantee pursuant to the Law be assigned to the Bank. It is up to the borrower to make sure that he receives the collateral due to him. If a bank guarantee as aforesaid or special insurance pursuant to the Law is not given, and only a caution is registered, the purchaser shall not be liable for payments on account of the apartment’s price other than in accordance with the progress of construction, as provided in regulations. In order to secure the issue of a guarantee in your favor pursuant to the Sale Law on the purchase of a dwelling from a contractor in a project that is being financed by a banking corporation, the consideration for the dwelling’s purchase must be deposited in the project’s construction loan account. In the case of projects the construction loan agreement in respect of which was executed after 1st June 2008, a book of payment vouchers is issued by the financing bank, and the payments to purchase the dwelling, including the payments on account of the loan, may only be made through it. Multi-Currency The Loan Execution Date And The Periodic Repayment Date The Bank allows you to choose the periodic repayment date, which may be on any day of the month. This date shall be agreed with you before the loan’s execution. Where the repayment date determined for the periodic payments on account of the loan is different from the loan execution date (that is to say, the loan execution date and the periodic repayment date do not fall on the same day of the month), accounting takes place with the borrower for the number of days between the actual loan execution date and the date of the first repayment according to the amortization schedule, such that the borrower shall only pay interest for the number of days that have actually elapsed from the execution date until the first repayment date on account of the loan according to the amortization schedule.
  33. 33. If the actual execution date is earlier than the date specified for execution for the purposes of the amortization schedule, on the first repayment date interest shall also be paid for the period from the actual execution date until the date specified for execution for the purposes of the amortization schedule. If the actual execution date falls after the date specified for execution for the purposes of the amortization schedule, the amount of the interest repayment for the period between the actual loan execution date and the execution date specified for the purposes of the amortization schedule is reduced. In choosing the loan execution date and the repayment date that is preferable for you, you should take into account, inter alia, the difference in the results of the execution date and the repayment date as set forth above, the terms and conditions of the agreement for the purchase of the dwelling that you have signed and the like. As a rule, the loan execution date is determined by the borrowers (subject to completion of all the acts necessary for such purpose). Multi-Currency In the case of foreign currency loans, the payments are monthly or quarterly. The Loan Costs 1. The LOAN EXECUTION COSTS The loan’s execution generally involves the following ancillary expenses: • the cost of an appraisal (which shall be paid directly to the appraiser); • “handling of credit and collateral – housing loans” commission, as set forth in the Bank’s tariff, which is published at the service station at the branch and on the Bank’s website;
  34. 34. • the collateral registration fee shall be paid directly to the various registration entities (such as the Land Registry (“Tabu”)/ Israel Land Administration / Registrar of Pledges and the like); • credit insurance premiums, if credit insurance is required (the premiums shall be paid by bank transfer or bank cheque issue for the purpose of paying the amount of the loan to the vendor or another specified beneficiary). Details of the amounts of the above charges can be found in the “Commission on the Bank’s Services” table which is displayed at each of the Bank’s branches and on the Bank’s website. Costs During The Loan Term Your attention is drawn to the fact that during the loan term you might be charged commission on various items in your current account in respect of the deposit of monies Multi-Currency for the purpose of repaying the loan. We recommend that you make enquiries about this at the branch at which the current account is managed. If necessary, you will also be charged commission on the registration of collateral, carry over (of mortgages), agreement to charges requested by you and photocopying of documents and approvals requested by you, as set forth in the Bank’s tariff that is displayed at the branch’s service station and on the Bank’s website.
  35. 35. Interest Maintenance It is important to note that the Bank’s interest rates are subject to change. Nonetheless, in order to enable you to complete everything necessary to obtain the loan at the interest that is approved for you, it shall be maintained for a period of 12 days from the date of the approval. Once this period has passed, if you have not completed all that is incumbent upon you, the Bank may change the interest rates on the loan. In the event that a loan is released in a number of parts, the interest on each part shall be determined having regard to the type of loan: In the case of loans on which the interest is variable and not known throughout the loan term The interest shall be determined in accordance with the mechanism specified in the last approval of the loan by the Bank. The mechanism is made up of LIBOR base interest plus a percentage supplement on the base interest, that is to say – the interest rate on each release shall be determined in accordance with the base interest applicable on the date of each release plus a supplement on the base interest that shall be identical to the supplement specified in the last approval of the loan by the Bank; Multi-Currency In the case of loans on which the interest is fixed The interest is made up of the base interest in respect of such currency, which is determined in accordance with the IRS (interest rate swap) interest for half the requested loan term plus a supplement on the base interest. That is to say, the interest rate on each release shall be determined in accordance with the base interest applicable on the date of each release (for the repayment term group in which the loan term is included) plus a percentage supplement on the base interest that is identical to the percentage supplement specified in the last approval of the loan by the Bank, all as provided in the loan agreement. In the case of loans that are repayable in a lump sum, the base interest is on the basis of the IRS interest for the full requested loan term and in the case of loans in respect of which the repayment of the principal is deferred (“grace”), the base interest is determined on the basis of the IRS interest for half the requested loan term in which payments are actually intended to be made on account of the loan plus the payment deferment term (“grace period”).
  36. 36. Insurances Property Insurance There is an obligation to insure all property charged to secure a loan when the balance of the loan is more than NIS 30,000 (in respect of anyone who has purchased a dwelling from a contractor, the duty to insure the property shall only apply from the date on which the contractor undertook to deliver the dwelling to the purchaser). The property may be insured with Tefahot Insurance Agency Ltd (hereinafter referred to as “Tefahot Insurance”) through the insurance station at the Bank’s branch, or, if you wish, you may take out the insurance directly with an insurance company chosen by you. If you choose to insure the property other than through Tefahot Insurance, you must contact an official of the Bank in order to obtain details in such regard. Multi-Currency For your information, in such cases the Bank may insist on the fulfillment of conditions necessary to secure its rights, including the existence of the following clauses: naming of the Bank as the irrevocable beneficiary under the policy, an earthquake clause and a clause providing for 30 days’ notice in the event of the policy’s cancellation. Requirements in connection with this insurance’s renewal are detailed in the property charge documents, which will be furnished to you in the course of the loan execution process.
  37. 37. Life Insurance The Bank generally requires that each qualified borrower with a loan (one or more) balance of more than NIS 30,000 be insured with life insurance payable to the Bank to the credit of the loan account in the event of the borrower’s death. This insurance may be taken out with Tefahot Insurance Agency Ltd (hereinafter referred to as “Tefahot Insurance”), but you may also, at your election, take out this insurance directly with an insurance company chosen by you, in accordance with requirements that may be obtained from an official of the Bank. For your information, in such case the Bank may insist on fulfillment of conditions necessary to secure its rights, including the existence of the following clauses: the naming of the Bank as beneficiary and a clause providing for 30 days’ notice in the event of the policy’s cancellation. The Bank may refuse to approve or even cancel approval for a loan that has already Multi-Currency been given, if the borrower or one of the borrowers is found unfit for life insurance cover in accordance with the Bank’s requirements. Details of the life insurance arrangement for the Bank’s customers through Tefahot Insurance Price quotations for the life insurance may be obtained from several insurance companies and the life insurance for the borrowers may be purchased through stations positioned at the Bank’s branches. The specification form of the main insurance details shall be furnished to the borrower after the policy’s purchase at the branch’s station. The full policy shall be sent after the loan’s execution. Your attention is drawn to the fact that everything set forth above in respect of property insurance and life insurance is a general and partial description only and is subject to the terms and conditions of the policies and the provisions of the loan documents.
  38. 38. Credit insurance In certain cases, the Bank will make the loan’s execution conditional upon credit insurance (by the company EMI). The beneficiary under the insurance policy is the Bank, and the insurance benefits are intended to cover the loan balance, if any, after the collateral’s realization (if the Bank is forced to realize the collateral), subject to the restrictions, terms and conditions laid down in the insurance policy. It is expressed that the taking out of the insurance does not derogate from or alter the borrowers’ obligations pursuant to the loan agreement, including with regard to the payment of any amount due to the Bank that is not covered by the proceeds received from the collateral’s realization and the insurance receipts. The premium shall be paid to the Bank by the borrowers on the loan’s receipt and shall Multi-Currency be transferred by the Bank to the insurance company. Alternatively, the amount of the loan may be increased by the amount of the premium. This amount shall be governed by all the terms and conditions of the loan, including interest, linkage and any other payment applicable to the loan. The amount of the premium is determined having regard to the following elements: the amount of the loan, the loan term and the ratio between the amount of the loan and the value of the charged property (the financing rate).
  39. 39. Prepayment conditions The loan may be prepaid in accordance with the provisions of section 13 of the Banking Ordinance. Commission is charged on prepayment as determined from time to time in the Banking (Prepayment Commission) Order, 5762-2002 or any other order replacing it. A borrower may prepay all or part of a loan given for housing purposes or against a charge of a dwelling, provided that the partial prepayment amounts are not less than 10% of the loan balance. According to the current Order, a direct loan is exempt from prepayment commission. At present, the commission includes the following elements: Multi-Currency Operating commission – correct as at the date of publishing this guide: NIS 60 (the commission is revised from time to time, as set forth in the Bank’s tariff, which is published at the service station at the branch and on the Bank’s website). Failure to give notice commission – 0.1% of the amount repaid, if the borrower does not give the Bank written notice of the intention to repay the loan at least 10 days prior to the repayment date but no more than 30 days prior to the repayment date. A borrower who does not act in reliance on notice given by him as aforesaid may not give such notice again for six months. Rate differentials commission – if the loan is given in foreign currency or linked to a foreign currency rate-: commission in the amount of the rate differentials between the currency rate on the date of the loan’s prepayment and the rate known two business days thereafter, if the borrower does not give written notice of at least two days of his intention to make prepayment.
  40. 40. Carry Over Of Mortgage In certain cases, you may sell the property in respect of the loan was given and carry over the loan to another property. The criteria for carrying over and the terms and conditions thereof are subject to the Bank’s procedures and the procedures of the Ministry of Housing & Construction, as shall be at such time. The Borrower’s Liability For The Loan’s Repayment Liability for the loan’s repayment rests with the borrowers. Accordingly, you must make sure that the payment is made each month. If for any reason the payment is not made, you must contact the Bank immediately in order to pay it. Payment on account of the loan’s repayment that is not made or that is made late shall bear default interest at the rate prescribed by the Bank from time to time (subject to legal restrictions). Multi-Currency Default interest is unlinked high monthly interest that accrues each month until the debt is discharged. In the event of default, the Bank may call for the immediate repayment of the loan and may even realize the charge of the property given to the Bank as collateral for the loan’s repayment. Waiver of protected housing and alternative housing It is expressed that the Bank requires that all the charge documents for the purpose of executing the loan include a waiver of the right to receive alternative housing and/or sheltered housing rights that the owner of a dwelling might have by law.
  41. 41. Accordingly, in the event of realization of a dwelling or any other collateral charged in the framework of the loan, the owner of the rights therein (the pledgor) shall vacate the pledged property and be left without any rights therein. This includes the rights of a protected tenant and/or rights to the value of alternative housing or rights to a reasonable dwelling, save for rights to the value of an alternative arrangement that shall be placed at his disposal and enable him to rent a dwelling in his residential area that is consistent with his requirements and the requirements of family members living with him, for a period of not more than 18 months, as determined by the Head of the Execution Office. Documents Required For The Loan’s Approval And Execution Documents relating to the borrowers: • Identity documents. Borrowers who are foreign citizens – passport and another identifying document bearing a picture and identification details; Multi-Currency • Borrowers who permanently reside abroad – shall sign an instrument appointing a representative in Israel; • The last three months’ statements from a commercial bank account, for each bank account; • loan application form filled out and signed as required; • confirmation of income from employment: for salaried persons – salary slips from the last three months; for self-employed – the last tax assessment and/or an accountant’s confirmation; • documents containing figures of the borrower’s financial position – their assets and liabilities; • below are examples of the types of documents required from residents of certain countries. Documents required from residents of other countries shall by determined in coordination with them.
  42. 42. Additional Documents Required To Consider A Loan To US Residents: • Full 1040 statements for the last two years; • Credit report; • Financial statements of assets and liabilities. Additional Documents Required To Consider A Loan To British Residents • P60 statements for the last two years; • An accountant’s confirmation of assets and liabilities. Additional Documents Required To Consider A Loan To French Residents • Annual income statements for the last two years; • An accountant’s confirmation of assets and liabilities. Documents Relating To Guarantors For The Loan: Multi-Currency •Identification documents (as set forth above in respect of the borrowers); •Confirmation of income (as set forth above in respect of the borrowers). Documents Relating To Property That Will Be Charged To The Bank (it is desirable, but not mandatory, to furnish these documents before approval in principle for the loan): •Land registration extract or confirmation of rights and charges (in accordance with the place of the property’s registration); •Agreement for the property’s purchase (if the property is not registered in the name of the borrower or chargor).
  43. 43. Documents And Acts For The Purpose Of Executing The Loan (If Approved): • Appraisal of the property proposed to be charged prepared by a licensed appraiser to whom you are referred by the Bank (if the Bank so requires); • If the property is charged (for example, to secure a loan of the vendor) – confirmation of the charge’s release, the loan’s discharge or pari passu approval, as required by the Bank; • Presentation of a bank guarantee in accordance with the Sale Law (on the purchase of a new dwelling – if the Bank so requires); • Application to take out property insurance and life insurance, including a declaration of health (in respect of borrowers who are fit for such insurance); • In the case of construction financing loans – building permit and engineer’s confirmation of the construction stage (if the Bank so requires); Multi-Currency • In the case of loans for the purchase of a dwelling – purchase agreement duly signed and photocopy of the ID and bank account no. of the dwelling’s vendor together with document verifying the account details (cheque, confirmation from the bank and the like); • Anyone taking out the loan through an attorney shall sign a power of attorney acceptable to the Bank and in accordance with the law; • Book of payment vouchers issued by the financing bank (in the case of loans to purchase a dwelling from a contractor in a project financed by a banking corporation pursuant to a construction loan agreement executed after 1st June 2008).
  44. 44. Documents And Acts Required For A Charge Of The Property In Accordance With The Following Details: (a) Property registered at the Land Registry (“Tabu”) in the name of the chargor: 1. Registration of a mortgage in favor of the Bank at Tabu; 2. Dwelling charge form signed by the borrower / other chargor. (b) Property the rights in which are registered in the name of the chargor with the Israel Land Administration (“ILA”) and/or a “building company”: 1. Deed of pledge signed by the borrower / other chargor; 2. Notice of pledge signed by the borrower / chargor and confirmation of its registration with the registrar of pledges; 3. Irrevocable power of attorney certified by a notary 4. Dwelling charge form signed by the borrower / other chargor; 5. Undertaking to register a mortgage of ILA or the building company. Multi-Currency Property Registered At Tabu In The Name Of The Vendor (“Second Hand”): (1), (2), (3) and (4) – as set forth in paragraph (b) above; (5) Undertaking to register a mortgage signed by the vendor; (6) Registration of caution in respect of the property: in favor of the borrowers - in respect of the purchase agreement; in favor of the Bank - in respect of undertaking to register a mortgage of the vendor.
  45. 45. (d) Property the rights in which are registered with ILA or a building company in the name of the vendor (“second hand”): (1), (2), (3) and (4) – as set forth in paragraph (b) above; (5) undertaking to register a mortgage of the building company and/or the vendor; (6) deed of pledge and pledge notice signed by the owner of the rights in the property and confirmation of its registration with the Registrar of Pledges; also, pledge and notice of pledge signed by the owner of the rights in the property and confirmation of its registration with the Registrar of Pledges; (7) dwelling charge form signed by the owner of the rights in the property and dwelling charge form signed by the vendor. (e) On the purchase of “second hand” property from a building company Multi-Currency (1), (2), (3) and (4) – as set forth in paragraph (b) above; (5) undertaking to register a mortgage signed by the contractor and by the registered owners of the land; (6) registration of a caution in favor of the Bank in respect of the aforesaid undertaking; (7) guarantee of purchasers of dwellings pursuant to the Sale (Apartments) (Assurance of investments of Persons Acquiring Apartments) Law, 5735-1974, assigned to the Bank, or other collateral pursuant to the said Law; (8) book of payment vouchers issued by the financing bank (in the case of loans to purchase a dwelling from a contractor in a project financed by a banking corporation pursuant to a construction loan agreement executed after 1st June 2008).
  46. 46. (f) Guarantee and other collateral pursuant to the Sale (Apartments) Law The Sale (Apartments) (Assurance of investments of Persons Acquiring Apartments) Law, 5735-1974 prohibits the vendor of a new dwelling from receiving more than 7% of the dwelling’s price, unless it gives the dwelling’s purchaser collateral intended to secure his investments in the event of liquidation, bankruptcy, attachments and the like. Such collateral might be in the form of a caution registered at Tabu in favor of the purchaser, a special bank guarantee or other collateral as provided in the Law. The Bank might demand that a borrower purchasing a new apartment present it with proof that he has received such collateral and may even demand that a guarantee pursuant to the law be assigned to the Bank; however, the Bank is not obligated to do so and it is up to the borrower to make sure that he receives the collateral due to him. If a bank guarantee as aforesaid (or special insurance pursuant to the Law) is not furnished, the purchaser shall not be liable for the payments on account of the dwelling’s price other than in accordance with the progress of construction, as prescribed in Multi-Currency regulations. We wish to emphasize that this guide presents the essential requirements and matters involved in obtaining a mortgage. This is a general document and should therefore not be treated as exhausting the Bank’s requirements in respect of a particular loan. In order to obtain the loan, you must act in accordance with the instructions given to you by the Bank’s officials and as provided in the contract documents.
  48. 48. How to Move Between Flats Easily How do you prepare to move into a flat? What are the advantages and disadvantages of packing by yourself, as opposed to using a moving company? Why is it important to number the boxes? All of the answers, as well as other helpful tips, are in the moving guide. Changing Addresses It is important to prepare a list of places that you must notify about moving between flats, including: the Ministry of the Interior, the Local Authority, bank, insurance company, credit card companies and kupat holim. Service Providers You should notify your service providers two weeks in advance of the move, and schedule a visit for the technicians to make Multi-Currency the necessary installations in the new flat: television, internet, phone, etc. Moving Company It is recommended to survey the prices between various moving companies, to ask for recommendations from relatives and friends and to set up a moving date with a moving company for the early morning hours. This will ensure that the movers won’t get caught up in prior moves and will show up awake. Additional information can be found in “What is Important to Arrange with the Mover” Sorting Your Things Moving is a good opportunity to organize your things, donate certain items and get rid of others. An additional advantage: a smaller number of items will make the moving costs cheaper.
  49. 49. Packing Your Flat The packing can be done by you or with the help of the moving team. Packing by yourself requires effort and time investment but can be a fun family experience. Packing included in the moving requires less effort but raises the price and lengthens the time needed to make the move. Packing Tools Packing yourself requires a number of items: boxes / cartons (supplied, usually, by the moving company a few days before the move), large tape rolls (masking tape) and string for closing the boxes, bubble wrap, or industrial wrap for sensitive items, old newspapers for wrapping fragile items (mainly dishes) and inner padding for the boxes, a sharp knife for opening the boxes to unpack, bags to wrap cleaning supplies and markers. Packing Method Multi-Currency It is recommended to pack room by room. Smaller items can go into the boxes after being wrapped in newspaper or bubble wrap. Larger items can be wrapped in industrial wrap or bubble wrap. Don’t forget to tape drawers and cabinets closed so they won’t open during the move. Proper Packing It is important to remember not to pack the boxes too much: they can rip or be too heavy to be carried. Therefore, they should be packed smartly and should be lifted every so often to check their weight. Marking the Boxes Using the markers the boxes should be labeled with their contents. That way the movers will know in which room they should place the boxes. It is recommended as well to number the boxes to ensure that all of them reached the final destination. Additionally, for the boxes containing sensitive things, they should be clearly marked “fragile”.
  50. 50. Personal Items Especially personal or sensitive items should be packed separately and taken in a separate care to the new flat. Just Before Do not forget to leave clothes for the moving as well as a few other items such as a toothbrush, shaving tools and towels. After the Move Ensure that all of your things arrived at the new flat, and no item was damaged during the move. Setting up the Flat Multi-Currency After unloading the items, it is recommended to begin organizing the flat room by room: completely organize one room, such as the bedroom, and then move onto the next one.
  52. 52. Property for Investment as an Additional Income Stream Deliberating how to invest your money? You could open a savings account, enter the equity market, or choose another path: purchasing a yielding property that will create additional revenue. What is a Yielding Property? A yielding property (or yielding real estate) is a property that you can rent out: flat, office, clinic, warehouse, store, building, hall, land, gas station, parking lot, etc. In other words, beyond the capital value of the property, it creates a stream of income for its owners. Therefore, purchasing a yielding property is considered a long-term investment (as opposed to short-term investments that are meant to yield profit immediately when their price rises). How to Calculate the Return from the Investment Multi-Currency The method for calculating the return is to take the annual income from the property against the purchase price. For example, if the property was purchased for 100 thousand dollars, and yields rental income of 500 dollars per month (6,000 dollars per year), the yield is 6% (before maintenance expenses and depreciation). Planning a Budget for Purchasing a Yielding Property You should perform a comprehensive financial plan in the framework of which you can check the scope of your initial personal capital at your service and the amount of a mortgage required in order to perform the purchase. In order to calculate the scope of the loan, you need to deduct your personal equity from the costs of the investment.
  53. 53. It is important to remember while preparing the financial budget that you must take into account the accompanying expenses beyond the investment in the property itself: real estate fees, fees for lawyers and taxes (such as purchase tax). Similarly, as the property owner, you must take into account the costs of ongoing maintenance (that you have to perform yourself or through a management company which charges for its service). Help From Professionals When referring to an investment with relatively high amounts, it is recommended to get help from the services of a lawyer specializing in real estate and an accountant/tax consultant. Experts in the laws relating to real estate investments can help each step of the way – beginning from preparing a budget, obtaining loans and signing the contract, and the retirement tax implications of the purchase. Therefore, it is important to pay the fees for these services in order to prevent mistakes and to receive the full profit of the investment. Multi-Currency How to Choose a Yielding Property You can make the choice using these few points: Is the yielding property an investment that will remain with your family forever, or is there a plan to actualize it (sell it) after a certain period such as 10 or 20 years? This decision has serious weight in regards to the property and its location. Consider, for example, if the yielding property is fit to remain with the family forever, it would be better to invest in a cheaper flat in a developing area that has potential. If the property is going to be actualized, it is better to make the purchase in an already developed area or an area in the advanced development stages.
  54. 54. Is the intent to manage the property by yourself or through a management company? This decision has serious weight in choosing the location, because owners living abroad or far away from the property aren’t able to perform ongoing and efficient management (additional information on the topic can be found in the article ‘Property Management – How To Do It’). Is it important for you to actualize the property (in profits) in short period of time? This decision also has serious implications which effect, among other things, the size of the investment, type of property, location and future financial plan. In other words, must you take into account that the investment won’t mature for some time or that it can be profitable in the short term? Additional Considerations When Purchasing a Yielding Property You must check the risk level of the property, meaning - the chance for an increase or decrease in value. For example: purchasing a residential flat in a relatively cheap, but quickly developing, area could improve the investment – the property value will go up Multi-Currency and so will the rental fees. Location, location, location. The location of the property must be taken into account for the relation between desire and return. On the one hand, the area must be sought after, in order to ensure high negotiability of the property. On the other hand, you must take into account the expected return. If the intent is to manage and maintain the yielding property on your own, it is important to take this into account when choosing the property location. In other words, it must be relatively close to your home/work. A developed area raises the negotiability of the property. Therefore, purchasing a residential yielding property must include the consideration of transportation, social (such as cultural centres), educational (such as daycares and schools) and economic (malls) infrastructure.
  55. 55. What are the Advantages and Disadvantages of Purchasing a Yielding Property? Advantages An additional income source from rental fees received from renting the property. Long-term investment offering financial safety for the future. Maintaining your quality of life after retirement. Disadvantages Like any investment there is a risk of loss – the property value or the rental fees could go down, and there is a chance the property will not be rented for periods of time that could damage the return. A yielding property is an active investment – you must find appropriate tenants, sign a contract with them and supervise them. Multi-Currency Personal management requires time and energy. Management through a management company requires another expense. The ongoing maintenance of the yielding property requires expenses. As the expenses go up the return goes down.
  56. 56. Renovation Before Renting Out Renting out the flat is an easy way to create additional monthly income or to cover the monthly mortgage payments. However, before presenting the flat to be rented, it is important to perform a number of repairs and adjustments, or in other words: renovations. It is true that renovating flats for rental requires the investment of time and money. However, on the other hand, the renovation raises the property value, makes it more attractive for potential tenants and allows you to receive higher rental fees. Renovation Budget The renovation budget for flats designated for rental must be calculated based on the amount of money to invest and the requested rental fees. The investment must have a return: if it is an average flat meant for long-term rental there is no financial reason to go into debt to install luxury chandeliers or expensive marble flooring. Multi-Currency On the other hand, since the renovation of the flat is not performed every day it is important to not compromise on the quality of materials and labor. The bottom line: you must find the “golden path” – quality, yet reasonable renovations, that will offer the owners (and tenants) quality of life and peace of mind. “Handy” owners can save money and perform the renovations themselves: certain work is relatively easy and in “do it yourself” stores you can find a number of simple and efficient materials and tools. You can, of course, suffice with a professional – a renovation contractor who will prepare the flat for rental. In the event that you choose to work with a professional renovations contractor, it is recommended that you choose an experienced contractor with references and sign a performance agreement with him.
  57. 57. Emphases for Renovating for a Rental When you renovate your flat to be a rental it is important that you consider a number of factors that can affect the rental fee amount and save you a lot of trouble later on: Walls – filling up holes and cracks, treating moldy spots, thoroughly sanding and painting. A whitewashed and gleaming flat gives the impression of a well-preserved property. Plumbing – if this is a relatively large and thorough renovation this is a good chance to check the plumbing situation in the flat, and if necessary to replace it. Sanitary materials – it is important to do a base clean of the bathroom with proper materials, to remove stains and paint chips and to do a complete paint job. If referring to a very old bathroom, it is advisable to consider replacing it with a new and modern bathroom. You must check the status of the toilet and sink and if necessary, replace them. Faucets – these are one of the items with the most complaints from tenants. This is Multi-Currency because faucets have a relatively long lifespan, and with the years they begin to drip. If referring to very old faucets it is recommended that you switch them with new ones. Buying several faucets could get you a discount on the price. New faucets can even offer a new look for your sink and bath. Kitchen – a central part of the flat, with serious weight in the considerations of potential tenants. If the kitchen is not very old, there is no need to invest in a new kitchen that will cost tens of thousands of shekels. However, you should improve the existing kitchen and give it a groomed look.
  58. 58. Outlets – you must check, through a professional electrician, the situation of the outlets and wiring. In addition, it is recommended to change the plastic covers over the outlets with new ones: modern covers give a good impression. Air conditioning – a flat without air conditioning could push away potential tenants. It is recommended to install at least one air conditioner in the living room (suitable for the size of the room) and to consider installing another small air conditioning unit in the bedroom. Another option (which costs much more) is installing a central air conditioning system. Doors – filling in cracks, renovation and new paint. In you need to replace some of the doors in the flat it is important to consider purchasing a number of identical doors and to replace all of them. Identical doors present the flat as uniform and invested in. In addition, buying a number of doors could lower the cost. Electrical/solar water heater – you must check the status of the existing water heater in the flat. In the event that you mustMulti-Currency replace it, it is recommended that you install a solar powered heater. However this is a significant investment, yet important: “is there a solar heater or only electrical heater?” is one of the most asked questions of potential tenants in a rental flat. Blinds – old blinds are a source of breakages and complaints of tenants. If the blinds system in the flat is already old, it is recommended that you replace them with new ones. On the other hand, you could remove them and put up poles for drapes. Don’t forget: when the renovations are finished, you should thoroughly clean the flat and only leave the furniture that can be used by the tenants (if there is any). A renovated, clean and furnished flat looked invested in, treated and is more profitable.
  59. 59. Property Management – What is Real Estate Management and How to Do It? Did you buy a property or several properties for investment? Congratulations! Now you have to ask the question – how do I manage the property? In other words, who will worry about finding appropriate tenants as well as proper maintenance? Whether the property is residential or business real estate, such as an office, clinic or gas station – yielding properties require ongoing property management in order to maintain their value, ensure they provide an appropriate return and worry about the needs of the tenants. Three basic ways to manage property: Real Estate Management Company Property management companiesMulti-Currency offer a service that usually includes a variety of options: locating tenants, preparing rental agreements and signing the tenants (including the required guarantees and securities), collecting rent, ongoing maintenance of the property (renovations and repairs), follow-up of the tenants’ payments of the various bills, and representation of the owners to the local authority and building committee. Some management companies also offer service of selling the property, if necessary. The advantages of this method: using the services of the property management companies will offer you free time and peace of mind (from the security of knowing someone is handling the property); a good solution for people living far away or abroad. The disadvantages of this method: the services of the property management company incur expenses (a fixed payment for the management fees) as well as require tracking of the company’s reports that are submitted periodically.
  60. 60. Personal Management The “owners”, meaning you, are responsible for the performance of actions connected to managing the property starting from locating the tenants to ongoing maintenance. The advantages of this method: there is no need to pay management fees to a property management company; the possibility of full time work (for owners with free time or retirees) or an interesting challenge to allow you to learn the new field of property management. The disadvantages of this method: requires time and energy, mainly in finding tenants and replacing them periodically, as well as ongoing maintenance (handling problems, preparing a list of professionals required for renovations and repairs, managing financial negotiations with them, etc.). This is not recommended for owners living far away or abroad; it requires basic Multi-Currency knowledge and learning ability, as well as personal and physical preparedness for a certain degree of “headaches”; when sick/on vacation/in reserve duty, etc., you must find a replacement to be in contact with the tenants. Property Manager Property management by an entity on behalf of the property owner to represent it before the tenants and to be responsible for the management, as well as all of the ongoing maintenance. The advantages on this method: peace of mind and free time. The disadvantages of this method: payment for the service; requires a certain degree of involvement, more than when working with a real estate management company; there is a need to keep track of the reports submitted periodically; when on vacation/sick/in reserve duty, etc., you must find a replacement to be in contact with the tenants.
  62. 62. Eligibility Certificate A certificate issued by the Ministry of Construction and Housing, granting the right to receive an eligibility loan or rent assistance. Applying for an eligibility certificate is done at a bank. The certificate specifies the type of eligibility (newly married, immigrants, etc.), as well as certain limitations or conditions that the eligible person must fulfil in order to receive assistance. Eligible Customers with a valid eligibility certificate, granting them a right for government financial assistance in housing, (either rent assistance or assistance through a loan for buying/building a residence). Eligibility Loan from State Budget Funds A loan and/or grant given from the state funds to eligible population, in accordance with Ministry of Construction and Housing assistance plans Bank Loan A loan from bank funds (as opposed to a loan from state funds), provided at market Multi-Currency rates for the entire population as well as for the eligible, on top of an eligibility loan. Banks offer a wide variety of loans, with different linkages, various interest types and various plans. The bank tailors a loan plan for the customer, and provides a loan according to needs, personal status, state of the property pledged, and other measures. Loan Amount The amount of the eligibility loan and the bank loan combined can reach, against the property. The amount of the loan given by the bank, including the eligibility loan if applicable, depends on the collaterals provided to the bank.
  63. 63. Collateral To ensure the repayment of the loan, the bank requires collateral. The main collateral requested by the bank is a pledging of the purchased property. If your repayment ability and the required financing accord with bank standards, the property will probably be the only collateral you’ll need. If not, additional collateral is required, such as pledging an additional property, presenting guarantors or credit insurance. Interest The price of money. The amount charged by the bank for providing the loan. The interest rate is presented in percentages, and is usually valid for a period of a year. Prime Interest A base shekel rate determined by the commercial banks for the purpose of calculating transactions and charging customers for credit. The prime interest is based on the interest rate published by the Bank of Israel. Multi-Currency LTV-Loan to Value The ratio of the loan from the value of the pledged property. If lender pledges two properties for the loan, the ratio is calculated from both properties. Financing ratio depends on the repayment ability. LTV of up to 95% of the property value is possible. LTV of 100% is possible when pledging two properties. A high financing ratio may require credit insurance. Memorandum of Understanding (MOU) A legally binding document, specifying the main conditions of a transaction between parties to an agreement. Signing an MOU before signing an agreement is normal business practice. An MOU usually involves an advance payment by the buyer, and an obligation of the property owner to sell the property. Israeli courts consider an MOU as a binding contract.
  64. 64. Caution (“He’arat Azhara”) A note in the Land Registry Office records, for the purpose of defending property buyers and preventing a registration of a transaction that is against the content of the note, until buyer rights are registered. Land Registry Office (Tabu) An office in the Ministry of Justice, registering ownership and leasing rights on properties in the property (Tabu) records. Property records also include court judgments, property transactions, land court decisions and orders, cautions, foreclosures, etc. The Land Registry Office provides property rights information to the public and supplies copies of records called Registry Document or Tabu Document. Early Payment Fee A fee that a bank may charge according to Bank of Israel regulations from customers that pay off a loan partially or in full, at a date earlier than the date specified in the loan agreement and the clearing schedule. The fee is composed of several payments. Multi-Currency The major payment is interest differences capitalization fee. Interest Differences Capitalization Fee The main component in an early payment fee, calculated according to three factors: 1.The difference between the loan interest and the average interest of loans actually given by all mortgage banks as available from the Bank of Israel and valid at the time of the prepayment. 2.The period from the granting of the loan and until payoff. 3.The remaining repayment period according to the loan agreement. Mortgage Transfer A process of replacing the property pledged to the bank with another property. For example, if a lender wants to sell a pledged residence and buy a new property that will be pledged to the bank (the new property must accord with the bank’s standards).
  65. 65. UMTB Would Like To Help Welcome You Home To Israel To find out more about our mortgages or to just to ask a question about the home buying process then click the button below: Contact Mizrahi