BOI regulations limits the ratio between property value and the size of the mortgage loan, knows also as LTV – Loan To Value. Usually first time buyers will be able to borrow up to 75%.In some cases banks will limit this to an lower ratio, such as: A property in the west bank, a property in the last floor, a very cheap property or properties with any illegal additions.
The limits on LTV and soaring purchase prices often make it very difficult to buy a home, even with high salaries or hefty parental help.
As a way to assist with this issue BOI allows bank to use a family members property as collateral. The family member will be referred to a liening guarantor.
The regulations regarding this situation aren’t very clear, and tend to feel very arbitrary.
Here are some of the guidelines:
- Bank will only allow using an immediate family member’s: spouse, parent, sibling or offspring.
- The limit in LTV for the parents apartment will be 50%. This will include an existing mortgage and the new one.
- Banks will not approve a loan grater than 100% and will always prefer you “put skin in the game“.
- Assuming the parents already have a mortgage, banks will usually only agree to give a second mortgage if they are the bank with the first mortgage.
- The loan on behalf of the existing property will incur higher rates than a regular mortgage.
Who is this good for?
Young couples who have a high income but low capital. Borroers that have mortgage free family members.
- Can anyone be guarantor? no, just someone from the above list.
- If the guarantor already has a mortgage, does this have any effect? yes, it affects their LTV limit.
- Can a family member from abroad be a guarantor? only if they have a property in Israel.
- What happens if one defaults? The guarantor is in risk of loosing their house.
- Which bank will do this? In theory all of them, practically only Mizrahi-Tfahot is consistent in approving this.