Last Updated on December 21, 2023

So many people dream of buying a home in Israel. You work hard and manage to save a few hundred thousand shekels. But, is it enough? When is the right time to pull the trigger? When are you stretching yourself too thin?

This guide should help you break through the inertia and get the ball rolling.

Looking for help? Readers often gain peace of mind before embarking on such a large purchase, by asking me to develop a property purchase model with them.

Send me your documents, I’ll build the model, and then we’ll do a 75 minute session together. At the end you’ll have an action plan and feel a sense of confidence and pride that you’re well on your way. Click here to learn more. Or to try by yourself, read on!

Step 1 – What will the apartment cost?

First, find out the value of the type of apartment you wish to buy. Search Yad2 for properties in the desired area to get a sense of selling price. Call several agents to get their sense of their market. Visit 5 properties to get a real sense of what’s available on the market.

Remember that properties are often advertised at 3-6% above expected sale price, depending on market factors and location:

Choose a desired property value. You can increase or decrease this number later on, based on the results of the below calculations, but it’s good to have a starting point.

For our example, we will look at a property worth 2,400,000 ₪.

Step 2 – Find some cash

We need to know how much cash you can produce and when.

Write a list of all your assets and whether they are liquid or only available on a certain date.

Source	Amount	Shekels	Liquid
Cash in bank	123,000 ₪	123,000 ₪	Yes
USD	$97,000 USD	336,000 ₪	Yes, USD
USD stock market	$62,000 USD	215,000 ₪	Stocks, USD
USD Gift from parents	$35,000 USD	120,000 ₪	In 10 months, CAD
Keren Hishtalmut	80,000 ₪	80,000 ₪	In 18 months
		874,000 ₪

Impressive work. Is it enough?

Step 3 – Put aside money for other stuff

Before we can calculate whether you have enough for a down payment, we need to set some money aside for:

1. Cash buffer / emergency fund for everyday living
2. Expenses associated with purchasing the property

Cash buffer / emergency fund

There is lots of personal preference that goes into working out how much you need to leave in the bank, but the amount should probably be equivalent to 2-6 months of expenses. Many of my clients who have stable jobs and multiple sources of support to fall back on in hard times (Keren Hishtalmut, Israeli unemployment, family, investments) end up in the 2-4 month bracket. The following is not a hard science and won’t be a fit for all, but is a useful prompt:

So let’s say we need to leave 74,000 ₪ for our emergency fund. 800,000 ₪ left.

Associated expenses

People complain that paying rent is throwing away money. If you thought you would escape that by buying a house, you were wrong. You need to pay lots of people lots of money when buying a house and you’ll need to plan for those payments by making a table like this:

Expense	Amount
Lawyer	21,000 ₪
Agent	42,000 ₪
Purchase Tax	24,682 ₪
Mortgage Broker	9,000 ₪
Bank fees, appraisal, registrations, notary, assessments etc.	2,500 ₪
Engineer to check the property	2,000 ₪
Movers	5,000 ₪
Professional Cleaner	2,000 ₪
Renovations	45,000 ₪
Furniture	25,000 ₪
Other / Buffer	3,500 ₪
Total	163,682 ₪

After subtracting the above expenses, we’re left with about 636,000 ₪ for a down payment.

(Remember that not all of it is available today. The money from family is coming in 10 months and the Keren Hishtalmut is opening in 18 months. Make sure you account for this in your cash flow plan, see below.

It’s also important to remember that it isn’t always wise to withdraw your Keren Hishtalmut. Where possible, it’s good to let the money grow tax free. You may be able to take out a loan against the Keren, but make sure to account for the repayments in your budget, see below. In saying that, if liquidating your Keren Hishtalmut allows an earlier purchase date, in some circumstances, it may be worth doing so.)

Step 4 – The “is it enough” tests

In order to take out a mortgage to purchase a property, you must already have cash available for a down payment. After you take out the mortgage, you will be paying fixed monthly sums to the bank. There are rules around both of these numbers, which could limit your ability to be approved for a mortgage.

Test 1 – 25% down payment

You have to provide 25% of the value of the property in cash as a down payment. To determine if you have enough for a down payment, multiply your available down payment amount by 4. If you’ve reached the Shamai (appraiser) assessed value of your home (this may be higher or lower than the actual purchase price), then you pass this test.

636,000 ₪ x4 = 2,544,000 ₪. Test passed ✅.

(If you’re not buying your first home, or if you’re buying through Mechir LeMishtaken, the minimum down payments differ.)

Test 2 – Repayment < 40% of income

Your monthly repayment must be less than 40% of your “disposable monthly income” (net income minus large fixed expenses such as loan repayments or rent).

So if your net household income is 24,000 ₪ and you have other loan repayments of 2,000 ₪, then the maximum monthly mortgage repayment you will be approved for is 22,000 * 40% = 8,800 ₪.

Will your monthly repayment be low enough? Next, we’ll calculate how much you’ll pay the bank monthly in order to repay the planned mortgage over 30 years. If the result is less than 8,800 ₪ then we pass Test 2. This is how you do the calculation:

1. We’re going to need a ~1.8M ₪ mortgage (2.4M – 0.6M)
2. For the sake of simulation, we’ll use a basic mortgage structure of 70% fixed rate and 30% variable (“Prime”). That is 1.26M ₪ fixed and 0.54M ₪ Prime.
3. For our interest rates, we’ll use the latest average market rates from here:

4. Enter these amounts into a mortgage calculator, as follows:

Our expected monthly mortgage repayment is 8,246 ₪. Less than 8,800 ₪. Test passed ✅.

Important note: Although a repayment at 40% of income is possible, you may get better terms if you are in the 30-35% range.

(Important note: The above mortgage is probably not be optimal for you. The amount, time period, and rates may all be wrong. You’ll eventually work out all of these things with a mortgage broker. But for the moment, we don’t care. We just want to know if a bank is likely to approve a mortgage. Or not.)

Test 3 – Monthly mortgage repayment and your budget

Many people stop here and don’t make it to the third test. But, this is the most important one of all. Here we’ll examine whether you can safely cover your mortgage repayments over the long term.

Start by asking, does a monthly payment of 8,246 ₪ fit into your budget? If your rent today is 5,500 ₪ and you struggle to save money monthly, you may have trouble freeing up another 3,000 ₪. In addition, moving often creates more monthly expenses. Will you need a cleaner? Are your Vaad Bayit, arnona, or electricity bills going to go up? Do you anticipate a change in lifestyle?

The only way to answer these questions is to build a forward-looking budget. Don’t worry, I’ve got you covered.

After creating a budget for the coming years, duplicate it and take some time to try to look 10-20 years into the future. Remember, your mortgage is a friend that won’t leave your side for up to 30 years.

Finally, you need to stress test your mortgage against rises in interest rates. As of writing this in mid-2022, the prime rate is expected to rise another 1% or more in the next 12 months. What happens if the rate hits 5% or more? Do you have a plan as to how you’ll cover your repayments?

Can you pass the mortgage affordability test ❓❓❓

Step 5 – Position your assets correctly

Passed 3/3? Congratulations! (If you didn’t pass one or more of the tests, see below.)

Now is the time to start preparing to pull the trigger.

One of the most important steps is to make sure that your asset allocation is appropriate for your financial plans. That’s a fancy way to say: “reduce your risk, fast”. You’re going to need your assets in cold, hard shekels in the next 12 months.

Over the past few weeks and months, clients are coming to me with the same question: “We want to buy a property, but we just lost 100,000 ₪ in the stock market. Is now the time to sell?” Others simply lost the ability to buy because the 20% drop in the stock market meant they now can’t pass one of the tests.

Don’t find yourself in the same situation. If you’ve made the decision to buy in the next few years, it’s time to start reducing you currency risk by moving to shekels and your market risk by selling stocks. If you’re buying in the next 12 months, then reduce risk fast.

Additional tip: Don’t wait too long to buy. While the bank is a good place for your down payment money, the longer you leave it there, the more value it loses.

Step 6 – Saying goodbye to your shekels

Before signing the contract, make a timeline listing every upcoming payment, its date, and the source of funds. Make sure you know how you’re going to make every payment to the seller and how and when you’ll need to cover the associated expenses.

Bonus – It’s not all about money

There are lots to do when buying a house. Here are some ideas to get you started:

• Get an Ishur Ekroni from any bank. This gives you peace of mind that a bank is at least willing to provide you with your planned mortgage.
• Consider whether you want to work with an agent. Don’t sign with them on a 2% fee. Negotiate.
• See lots of properties and hopefully find your dream home.
• Consider working with a mortgage broker. This is often a wise move.
• Regardless of whether you use a mortgage broker, learn about mortgages. Here is a great video series in Hebrew.
• Find a real estate lawyer
• Learn about other important topics such as making an offer, negotiation, payment schedule, tax, and Olim benefits.

What if I didn’t pass the tests?

That’s OK! Here’s how you may be able to plan to pass in the future.

Increase your down payment by saving

Increasing your down payment not only helps reach the 25% minimum, but also reduces your mortgage and therefore your mortgage repayments.

How much can you save per month? 5000₪? Run the simulation again 12 months from now and 24 months from now with an extra 60K ₪ and 120K ₪ saved. Remember to also increase the price of the property you are purchasing in line with your expectations of the rate of growth of housing prices. If your savings can accumulate faster than property prices can rise, then you’re in a good position.

To learn more, see how dedicated article, How to buy a home in Israel without help.

Increase your down payment by finding alternative sources of funds

• Speak to your family. They may have intended to give you money in the future or in an inheritance. When you describe your situation, they may prefer to give it to you now.
• If you can handle higher loan repayments, but can’t get to the 25% down payment, you could (carefully) consider an additional loan. A loan from family, a general loan from a different bank at higher interest rates, or an additional mortgage on a property owned by a different member of your family. Budget carefully.

Receive approval for a higher monthly repayment

• See if you can increase your income by seeking a raise from your current employer or look for another job
• Ask a family member to sign onto the mortgage, such that their salary can be taken into consideration.

Work to find space in your budget

There are no magic solutions. Increase income or decrease expenses, so that you can afford a larger mortgage. But tread carefully. Convince yourself that you can maintain your new lifestyle over the long term.

Decide to invest your money elsewhere!

Contrary to your parents’ best advice, you don’t have to own property in order to build wealth. In fact, some analyses show that you can make more money by paying rent and investing your money (smartly) in the stock market. This requires real discipline as your mortgage is not forcing you to put away money every month.

Investing in the stock market can feel scary and involves risk. It’s also important to know how to choose an account and funds that will minimize taxes and fees. That’s why Aaron and I created an online Investment Bootcamp. Have a read of the curriculum to see if it could help you out.