At this point, you have successfully traversed the application process (Before You Apply – Part 1), been approved for a mortgage (Documentation – Part 2) and chosen the mortgage products that best suit your needs (Mortgage Products – Part 3). In order for the mortgage to actually be funded, the banks have several requirements – which we discuss below.
As a general rule, banks will require an appraisal of any property being financed with a mortgage – the only exception being a “first-hand” property that is part of a larger development. Whether it is due to regulatory requirements or a bank’s own decision, the amount of funding is often limited to a certain percentage of the value of the property, which is deemed as either the contract purchase price or the appraised value, WHICHEVER IS LOWER.
When should I have the appraisal done?
An appraisal is required before a bank will fund a mortgage. The question then becomes whether it should be done before or after a contract is signed.
On the one hand, the cost of appraisal is actually slightly higher when it is done before a contract is signed as opposed to after. Depending on the value of the property, which generally guides the cost of the appraisal, this can mean a difference of between a few hundred and a few thousand shekels.
On the other hand, there could be serious implications if the buyer does not have the appraisal done prior to signing the contract. As mentioned above, the financing that a bank will allow is tied to the value of the property. If the appraisal is significantly lower than the purchase price, the buyer may find themselves needing a much larger down payment than originally expected or, in a worst case scenario, may not be able to obtain a mortgage at all. Additionally, the appraisal may find various defects in the property which may both lower the value and, if known prior to signing the contract, would have allowed a buyer to either withdraw from or renegotiate the contract.
In all cases, we recommend that buyers have the appraisal done prior to signing the contract.
Who should I request to do the appraisal?
Each bank has their own list of appraisers that they accept for the purpose of valuing a property. If a property has already been appraised by a company that is not on the bank’s “list”, it is possible to request that the bank accept the appraisal – however it is not certain that the request will be granted. Therefore, if you already have an approval from a bank and wish to have the appraisal done before the contract is signed, it is recommended to use an appraiser that is approved by that bank.
Who will arrange the appraisal?
Arranging the appraisal is the responsibility of the borrower. If you are working with a mortgage broker, the broker should assist in arranging the appraisal.
Mortgage banks will require property insurance covering at least the ‘rebuild’ cost that is estimated by the appraisal, with the bank delegated as the beneficiary of the policy. Coverage can be obtained either through the bank’s internal insurance brokerage or directly through an insurance company.
In most circumstances, banks will require that all borrowers and/or cosigners on a mortgage obtain or assign a life insurance policy naming the bank as the beneficiary for the amount being borrowed from the bank. There are policies designed specifically for mortgage coverage, where the coverage is tied to the declining balance.
In many instances, we are able to obtain a waiver of the life insurance requirement for our clients. This may, but not necessarily, require that the borrower has insurance coverage that could be used to pay off the mortgage balance in the event of the demise of the borrower.
Payment of Borrower’s Equity
Banks typically require that the borrower pays their equity prior to the bank funding the mortgage. Some banks will require proof that these payments have been made from the buyer to the seller, which might include copies of bank transfer confirmations, cashed checks, etc.
Under certain circumstances, banks may partially waive this requirement, allowing the borrower to pay +/- 50% of their equity – but this is an exception, not the rule.
Israeli Bank Account
Before funding a mortgage, banks will require that the borrower sets up an automatic payment (hora’at keva) from an Israeli bank (either the mortgage bank itself or any other Israeli bank) that is in the name of the borrower and any cosigner(s). If the borrower is from overseas, a new account can be set up during the same process as opening the mortgage file, either by the borrower or via a Power of Attorney.
Proof of Payment of Taxes/Clean Title
The bank will need to receive several confirmations prior to funding the mortgage. There are a host of documents that will need to be obtained/provided by the attorneys for both the buyer and the seller. A partial list of these documents would include:
Payment of Purchase Tax (Mas Rechisha) by the buyer
Payment of Capital Gains Tax (Mas Shevach) by the seller
Clean Title (showing no liens against the property)
Signing of Mortgage Documents
Shortly prior to the intended funding of the mortgage, the borrowers/cosigners will need to sign the mortgage documents at the bank. In the event the buyers are overseas, this can be done via Power of Attorney.
These mortgage documents will contain all the final terms and conditions, including the products and rates covering the mortgage.