Two things determine how much mortgage you will get: how much the apartment is worth (the financing ratio) and how much you can repay (repayment capacity). The bank will approve the lower of the two.
The payment-to-income ratio: the most important number
Payment-to-income ratio (PTI) = the monthly mortgage payment divided by the household's disposable income.
- The Bank of Israel prohibits approving a mortgage when the ratio is above 50%.
- Above 40% the bank must set aside more capital, so most banks avoid it.
- In practice, a ratio of about 30%–35% is considered reasonable and safe for most families.
Details: the payment-to-income limit.
An example
A household with net income of NIS 22,000 a month. At a 33% ratio, the maximum payment is about NIS 7,260. At an average rate of 4.6% over 30 years, that allows a mortgage of about NIS 1.4 million. If there is a car loan of NIS 1,500 a month, the amount drops significantly.
Check yourself with the "How much mortgage can I get" calculator (in Hebrew).
What else the bank checks
- Income stability – seniority at work, tenure and type of employment. The self-employed are assessed differently: mortgages for the self-employed.
- Existing liabilities – loans, leasing, alimony. Each one reduces the amount.
- Account conduct – overdrafts beyond the limit, bounced checks and a permanent overdraft affect the decision. How to get out of overdraft
- Credit data – past arrears may lead to a refusal or a higher rate. Credit rating and mortgages
- Age – because the loan term needs to end at a reasonable age. Mortgages at an older age
"The bank approves" is not the same as "right for you"
Even if the bank is willing to approve a high ratio, that does not make it wise. Build a real budget (a family budget) and leave room for changes: another child, a drop in income or a rise in the prime rate.