Equity — The Foundation of Every Deal
In the Israeli real estate market, the bank will not finance your entire purchase. According to Bank of Israel guidelines, the minimum equity for a first home is 25% of the property price. For a second property or more — at least 50%. This means that if you want to buy a property for ₪2,000,000, you will need at least ₪500,000 in equity (for a first home).
What counts as equity? Bank savings, pension or provident funds (under certain conditions), liquid securities, family assistance, inheritance, and proceeds from selling an existing property. Make sure the money is available — not locked in a long-term savings plan that would incur early-exit penalties.
Ancillary Costs People Forget
The property price is only part of the story. Every transaction has ancillary costs that can reach 3%–6% above the property price:
Purchase Tax: Depends on the property type and price. For a first home — partial exemption. For a second home — 8%–10%.
Lawyer's fees: Usually 0.5%–1.5% of the transaction value.
Appraisal: Approximately ₪1,500–₪3,000 for a standard appraisal.
Broker commission: 2% (+VAT) if you used a broker.
Land registry (Tabu) / Israel Land Authority registration: A few hundred shekels.
Building inspector / structural engineer: ₪2,000–₪5,000.
Initial renovation: If the property requires renovation, budget for it in advance.
How Much Mortgage Can You Get?
The Bank of Israel has set several clear restrictions. First, the Payment-to-Income (PTI) ratio — the monthly repayment on all loans must not exceed 40% of your net income (most banks cap this at 33%–40%). Second, the Loan-to-Value (LTV) ratio — the bank will not finance more than 75% of the property price for a first home, and 50% for an investment property.
Example: A household net income of ₪20,000 per month. The maximum monthly repayment is approximately ₪7,000–₪8,000. At 4% interest over 25 years, this allows a mortgage of approximately ₪1,300,000–₪1,400,000.
The Safety Cushion — A Must, Not Optional
Never invest all your equity in a transaction. Always keep a safety cushion. In life and in real estate, unexpected things happen: urgent roof repairs, a tenant who leaves, a vacancy period, a rise in mortgage interest. Entering a deal without keeping money aside can result in severe financial pressure.
The simple rule: after the purchase, you should have at least 3–6 months of expenses (including mortgage payments) available as liquid funds.