Buying an Apartment from a Developer — A Guide to Planning the Deal and Mortgage Correctly

One of the major mistakes in buying from a developer is looking only at the first payment. A project can offer payment terms that look very attractive at the outset, while the largest part of the apartment's price may not be due until much later.

That's why you need to look at the whole deal: What's the apartment's price? How much equity do you have today? How much of it makes sense to put into this deal? When is each payment due? What mortgage amount will be required? And what's the monthly payment likely to be on the day the mortgage is taken out in full?

The fact that a relatively small sum is required today doesn't mean the deal fits your financial ability. A good deal starts with the ability to complete it — not just the ability to enter into it.

In a purchase from a developer, planning the mortgage in advance carries special importance. Even if a significant part of the mortgage won't be needed for another year or two, you need to understand the rough scale of the future financing today.

The review should include, among other things:

• Available equity capital
• The expected mortgage amount
• The future monthly payment
• Household income
• Existing obligations
• The developer's payment schedule
• Costs related to the deal
• The safety margin remaining after the purchase

In-principle approval is an important part of the process, but when delivery is far off, it shouldn't be treated as though it guarantees the mortgage terms you'll get in the future. The goal isn't just to get an approval from the bank today — it's to build a financing strategy for the entire deal.

In recent years, various projects have offered financing plans in which the buyer pays a small portion of the apartment's price at signing and most of the sum close to delivery. From a cash-flow standpoint, the structure can be attractive. But it's important to understand what's behind it.

Say you buy an apartment and pay only part of the price today. You've effectively already committed to the full price, while your ability to finance the remaining amount will need to be proven in the future.

That's why, at the time of purchase, you need to ask: What happens if interest rates are different when you take possession? What will the monthly payment on the future mortgage be? Will you be able to sustain it? Will you still have enough equity left? And could a change in your income or obligations affect your ability to secure the financing?

Convenient payment terms are not a substitute for financial planning.

When buying from a developer, the contract includes a payment schedule that defines when each portion of the apartment's price is due. This schedule matters a great deal when structuring the mortgage.

You need to decide when to use your equity and when to start drawing on mortgage funds. Each such decision can affect your cash flow, the interest you'll pay, and your level of financial flexibility.

So it's wrong to separate the purchase contract from the mortgage. The two need to work together as part of a single plan.

When buying a new apartment, it's important to understand all of the costs surrounding the apartment's price.

Under the contract and the legal provisions that apply to the deal, part of the payments may be linked to a construction-input price index. Israeli legislation limits how this indexing can be applied, so it's important to check precisely what your contract states. (Source: Israeli Government)

In addition, you should account for additional expenses that may accompany the purchase, such as:

• A lawyer
• Purchase tax, where applicable
• Upgrades and changes to the apartment
• Furniture
• Moving
• Financing costs
• Mortgage-related expenses

When planning a deal worth millions of shekels, it's important not to reach the moment you get the keys having already used up all your equity. Sound planning leaves room for life after the purchase too.

Many projects have a bank or financial body providing oversight for the project. This oversight has real significance for how payments are made and for safeguarding buyers' money.

Israel's Sale Law includes mechanisms designed to protect the funds a buyer pays a developer, so before transferring any money you should confirm the transaction follows the mechanisms relevant to your deal. (Source: Kama Kama)

This is also one of the places where it's important to work alongside a real estate lawyer who represents the buyer and reviews the agreement and its legal safeguards.

The fact that a particular bank is overseeing the project doesn't necessarily mean it's the bank you should take your mortgage from. A mortgage is a financial deal in its own right.

So when the time comes to arrange financing, it's worth checking your options on the market, comparing banks, and negotiating the terms.

The Bank of Israel now requires a uniform presentation of key figures in the in-principle approval, including the first payment, the highest expected monthly payment, the projected cost, and standardized mortgage baskets — which makes it easier to compare offers. (Source: Bank of Israel)

The goal isn't to choose the most convenient bank. The goal is to choose the mortgage structure that's right for you.

One of the advantages of buying from a developer is the ability to plan ahead. But that's exactly where one of the risks lies too.

If the apartment is expected to be delivered in two or three years, you need to think about what your life might look like at that point: Is your income likely to change? Is your family likely to grow? Are there loans that will end? Are new expenses likely? Are you planning to keep money aside for investments or other opportunities?

A mortgage isn't just a solution for financing the apartment. It's part of the family's financial strategy.

The monthly payment is an important figure, but it doesn't tell the whole story.

In some cases you can lower the payment by extending the mortgage term, but a move like that can affect the total cost over the years.

So you need to weigh things together: the monthly payment, the mortgage term, the tracks, the level of risk, the flexibility, and the total financing cost.

The goal isn't to reach the lowest possible payment at any cost. The goal is to reach the payment that's right for your family and its financial structure.

Once a contract with the developer is signed, a large share of the decisions have already been made. So the best time to plan your mortgage is before you sign.

At this stage, you can examine the deal with a clear head: Does the apartment's price fit our ability? Is our equity sufficient? How much mortgage will we need? What's the expected payment? How is the payment schedule structured? Are we leaving ourselves a safety margin?

And only once the picture is clear should you make the decision.