Financing: where does the money come from?
Buying a home involves more than the property price. It requires proper planning of the equity, mortgage, loans and additional transaction costs. This page explains the available financing sources, how to avoid dangerous leverage, and how to build a financing mix that keeps repayments manageable and preserves a safety cushion after receiving the key.
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Buying real estate is usually the largest investment in a person's life. In the previous chapters, we learned how to choose a property and inspect it in the field. Now we reach the million-shekel question, literally: how do you pay for it?
Building a stable real estate transaction requires more than simply "having money in the account." You need to understand the financing mix: the precise combination of equity, mortgageA long-term loan for purchasing a property, with the property serving as collateral for the bank. and supplementary loans, while preserving financial securityA general term for a tradable financial asset (such as a share, bond, or unit in a fund) that represents a right to an asset or to profits..
Equity: your entry ticket
Equity is money you own that does not come from the bank as a loan. It powers the transaction. It is not only the "entry ticket," but the main factor that lets you manage the transaction calmly and safely.
Why should you aim for more equity?
The more equity you bring, the lower your "risk level" appears to the bank. The direct result is better mortgage terms: the interest rateThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower. is usually lower, and the monthly payment is more manageable and flexible.
The home price is only part of the picture
A common mistake is thinking that equity needs to coverA contract under which an insurance company undertakes to compensate the insured in the event of damage in exchange for a periodic payment. only the difference between the mortgage and the home price. In practice, the home itself is only part of the total cost. Beyond the property price, prepare for substantial additional expenses:
- Purchase tax, Mas Rechisha (מס רכישה)A tax imposed on the buyer, the amount of which depends on the value of the property and on whether it is the buyer’s only home.: An expense that can reach a high amount, depending on whether this is your sole residence or an investment property.
- Lawyer and brokerage fees: Expenses usually calculated as a percentage of the transaction price.
- Renovation, furniture and moving: Costs that tend to grow during the process.
When raising equity, distinguish between liquid money and money that must not be touched:
Healthy sources of equity
- Deposits and savings: Money sitting in the bank at a low interest rate.
- Liquid investment portfolio: Selling stocks or bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest. to move the capital into real estate.
- Investment provident fund: Fully liquid money that can be withdrawn at any time, subject to capital gains tax.
Completing the equity: additional sources for missing money
Sometimes you are short by tens of thousands of shekels. Before abandoning the transaction, search in the "corners":
- Family assistance
- A loan or gift from parents or grandparents is the most common way to complete equity in Israel.
- "Dormant" capital
- Check tax refunds, reserve-duty grants, the military deposit for young people, or locate lost money in old funds through Har HaKesef (הר הכסף).
- Loans backed by savings
- You can take a loan on excellent terms, at a low prime-linked interest rate, backed by a Keren Hishtalmut or provident fund without withdrawing the money. The money continues earning returns in the fund while you receive cash.
Planning additional expenses: what is commonly forgotten?
One of the most common mistakes is looking only at the home price and ignoring the extra expenses that come with it. If the home costs ₪2 million, you need equity that also covers additional costs, which can reach 10% or more of the property's value:
Expenses to consider
- Purchase tax: Varies according to whether this is your sole or an additional home.
- Lawyer fees and brokerage fees.
- Fees, appraisal and mortgage-file opening fees.
- Renovation, moving and initial furniture.
Checklist: common financing mistakes
Several mistakes repeatedly appear among home buyers.
Mistakes to avoid
- Excessive leverage: Entering a transaction without genuine equity while relying on supplementary loans. This is a house of cards that may collapse when interest rates rise.
- Skipping legal review: Building violations or liens on the property may prevent the bank from granting a mortgage at the last moment. Use a lawyer who specializes in real estate.
- Relying on a "guaranteed returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested.": Nothing in real estate is guaranteed. Plan the financing so you can make the payment even if the apartment remains vacant for one or two months.
- Failing to compare banks: Do not take the first mortgage offer. A 0.2% interest-rate difference may save tens of thousands of shekels over the years.
- Checking tenants: When buying an investment property with tenants, check whether they pay on time, their contract terms and whether there are problems with the property.
Frequently asked questions
Should I withdraw my Keren Hishtalmut to increase the equity and reduce the mortgage?
Withdrawing it can reduce the mortgage, lower the monthly payment and save a great deal in interest. On the other hand, a Keren Hishtalmut is a highly beneficial investment because of its tax benefits and long-term growth potential. Before deciding, compare what is better for you: saving mortgage interest or allowing the invested money to continue growing.
How much safety margin should I leave for additional expenses after buying the home?
Even after pricing the lawyer and mortgage adviser, it is generally advisable to leave at least ₪30,000–₪100,000 aside, depending on the home price, property condition and your financial stability.
This money is intended for unexpected expenses such as repairs, furniture, appliances and moving, and to preserve peace of mind and an emergency fund after the purchase.
Which is better, bringing more equity or taking the maximum mortgage and keeping cash for other investments?
More equity means a smaller mortgage, a lower monthly payment and less total interest. On the other hand, some people prefer to keep part of the money invested or liquid in the expectation that investment returns will exceed the mortgage cost. The decision depends not only on the numbers, but also on the level of risk that suits you and the importance of peace of mind compared with potential return.
In summary
Financing a real estate transaction is one of the most critical stages in buying a property.
Good financing is not merely "getting the money," but managing it wisely.
- Start with stable equity and do not touch your pension. You can use other sources to complete the needed equity, including savings, loans and family assistance. - Calculate the additional costs in advance so you are not surprised. - Obtain approval in principle before taking any legal step.
The bottom line:
A good real estate transaction is built on safe cash flow. With an accurate financing plan, you are not only buying a property; you are buying peace of mind.