Upon buying an apartment in Israel the process will probably be somewhat different than what you are used to. The steps below are intended to provide you with general information as to this process and to help you understand your various options. As this is an expensive purchase we highly recommend consulting with a professional (please feel free to visit us at www.eden-investments.com) before making any critical decisions.
1. Choosing and Evaluating an Apartment
- There are many sites that provide listings for both new and second hand apartments. As expected, some of them are more updated and have a higher turnover than others. Be careful of whom you deal with and make sure when dealing with brokers that they are properly licensed.
- Things to consider when choosing an apartment:
- School district
- Neighborhood maturity (are the facilities in the neighborhood up and running, is the population older/younger, etc)
- Proximity to religious and social centers
- Physical: When considering a new apartment you may want to consult with a building engineer or have an architect review the plans and technical specifications. In the case of a new apartment you may be interested in making changes to the layout; this should be discussed with a professional (is what you want to do structurally feasible, what will the costs be, are there additional possibilities that you haven’t thought of) and done early on in the process.
- Zoning: Residential Vs. Commercial, future plans for the area
- Legal: Who has title, any outstanding liens
- The best advice anyone can give you is to come prepared. Preparing in advance means: Know the market and the neighborhood. Understand the pros and cons of the apartment and remember – not every apartment is for you. If the price is not right be ready to walk away. You will find other apartments. With that said, don’t be too stubborn – don’t let the seller feel you are not budging because that will put him on the defensive.
3. Zichron Devarim- Interim Agreement
- This is a one page document summarizing the essential terms of the agreement. Today, many lawyers recommend not signing a Zichron Devarim, because it is legally binding. If it is a seller’s market you may be pressured into signing in order to reserve the apartment and take it off the market. Best to consult with a lawyer before you sign anything.
- When purchasing a new apartment, one is usually required to pay an Application Fee to the builder to reserve the apartment until the contract is prepared.
4. Financing the Deal:
- The first step in applying for a mortgage is determining how much you need – typically additional costs (upgrades, improvements, renovations) can add 5%-15% to the cost)
- If residing in the US, you will need to show tax returns from the previous year, eg. W2 or a 1040 form as well as credit history reports
- Typically banks are willing to lend up to 70% of the balance without EMI and up to 85% with EMI
- Applying for “Ishur Ekroni” – Confirmation on Principle
- This is a general mortgage approval from the bank. At this stage you will be required to provide all the documentation and the bank will give you a general approval and indicate the amount it is willing to lend.
- It generally takes 3-10 days to obtain this approval; The general rule is that it is valid for three months
- The Confirmation on Principle you receive is good for three months. If the three month period expires before you actually take out the mortgage, then it will be necessary to update the application form
5. Signing a Contract with the Seller:
- Note: Schedule this in advance so that the contract is signed with the seller immediately after the Ishur Ekroni is received.
- Hearat Azhara – Warning Comment (at the Land Registrar): Once the contract is signed a note must be added to the deed to indicate your rights to the property. This is a comment advising any prospective purchaser that there is a sales contract for this apartment and the sale is in progress.
- Like any other substantial contract we recommend you consult with a lawyer to cover the legal aspects of the deal.
6. Finalizing the Loan - Mashkanta:
- Return to the bank and open a file (this cannot be done without a signed contract finalizing the sale of the home)
- For new apartments the bank only requires a copy of the contract and approval from the seller. For second hand apartments the bank will also require proof of registration from the Land Registrar.
- The bank prepares your file and notifies you within a few days that the loan contract is ready for signature
- If you already have a lawyer he should handle the registration of the apartment.
- When purchasing a new apartment the seller’s lawyer will register the apartment (the seller may sometimes request an additional fee for this).
8. TAX PAYMENT:
- There are several types of taxes and fees that may be associated with your new apartment, they are:
- Property acquisition tax – Mas Rechisha is a progressive/graduate tax, which means that it increases with the price of the apartment. Generally payable within 50 days of signing the contract for the purchase of the property.
- Arnona – City taxes – are determined by the size of your apartment and the location. In the more exclusive areas of a given city the Arnona is usually higher.
- Maintenance – property maintenance or Vaad Bait (joint property maintenance in apartment buildings) are usually a requirement in apartment buildings. This fee may become fairly expensive if your building requires an external management company or if it has many pending repairs. You should consult with the Vaad bait prior to signing your contract.
- Note: Prior to transferring the apartment into your name make sure the previous tenant paid all his debt, taxes and utility bills.
9. MOVE-IN AND ENJOY!!
- Although this may seem to be the fun part of the process, in the event that this is a new apartment be sure to remember your legal rights. You have certain time periods determined by law to inspect your apartment and to require the developer to fix any problems – make sure to take advantage of these time periods otherwise your rights will expire.