What Are the Costs of Buying a Home?

Thousands of words have already been written about how buying a home is the biggest investment some of us will ever make. There's a reason this subject gets so much attention. These days, just about anyone who isn't buying a home is probably talking about it or planning to in the near or medium term. But unfortunately, dreams are one thing and reality is another. The meteoric rise in housing prices has turned the dream of owning a home into a grueling financial journey for almost every couple in Israel. The basic hurdle is putting up a big enough down payment. Coming up with hundreds of thousands of NIS in initial funds forces many families to scrape together every shekel, cash out savings, lean on family, and — in tough, risky cases — even raise money through non-bank loans. But that's still not all it costs to buy a home.

If only that were the end of it. The down payment, combined with the mortgage payments, doesn't cover all the costs you'll run into during the purchase.

The many extra costs we describe below easily add up to tens or hundreds of thousands of NIS. So once you've found your dream home, and before you transfer the deposit on it, write down every additional cost you'll have to pay. The payments to the seller are plainly not the only expense on the way to getting the keys. There are other costs too — some you'll be required to pay, and some you'll want to pay. A few of them can be folded into the mortgage loan itself — but only with proper, advance planning.

These are the mandatory costs of buying a home

The one payment you absolutely can't avoid is the purchase tax. You have to pay the Israel Tax Authority for buying the home. Use the Israel Tax Authority's purchase-tax simulator to see what the tax will be — it can range from a full exemption to hundreds of thousands of NIS, depending on your situation and the property price.

Another, genuinely unpleasant cost is a new home getting more expensive because of a rise in the Construction Input Price Index. If you're buying from a developer, then depending on your contract, your debt may be linked to the Construction Input Price Index — an index the Central Bureau of Statistics publishes every month. The usual way to limit your exposure to it is to transfer the money to the developer as early as possible (though that isn't necessarily the right thing to do).On the Central Bureau of Statistics website you can get up-to-date information on changes in the index.

These are costs you will very likely need to pay

Here are the costs of buying a home that you'll almost certainly have to pay:

• Various legal services involved in taking out a mortgage. You'll have to sign a power of attorney that lets the bank act on your behalf — for example, to sell the property if you fall behind on the monthly payments. You can sign the power of attorney with any attorney (not just a notary). The price is fixed by law, updated from time to time, and currently stands at under 200 NIS for an individual and almost 300 NIS for a couple.
• On top of that, you'll need to register caveats in the bank's favor at the land registry offices — so the property can't be sold without its approval. This costs about 160 NIS per registration. You'll also need to register a pledge notice with the Israeli mortgage registrar in the bank's favor — that runs about 250 NIS.
• A small, annoying fee that comes with taking out a mortgage is the account-opening fee — 360 NIS.
• We're not done with the bank. It'll ask a real estate valuer to inspect and approve the legal status of the property and set its fair value. This runs from hundreds of NIS to a few thousand, depending on the purchase price. If the property costs more than four million NIS, an expanded, pricier appraisal is usually required, running into the thousands.
• When you take out a mortgage, barring a few exceptions, the bank will require you to take out life insurance and property insurance. The bank wants to protect its investment in case something bad happens to you or to the building. The life insurance depends on the mortgage mixture you take, your date of birth, and whether or not you smoke. If you already have a private life insurance policy that pays out in the event of death, you can assign it to the bank and skip the extra coverage — but then, if you die, your loved ones won't receive a cash payment (unless the policy is bigger than the actual outstanding mortgage balance). Use our life insurance calculator to compare offers from the six biggest insurance companies in Israel.
• You'll need to register a caveat in your name at the land registry office so that no one can sell the property without your approval. This costs 160 NIS per registration.
• When buying from a developer: a contribution to the seller's legal costs — that is, a payment to the developer's attorney. Section 6C of the Sale (Apartments) Law states that the buyer (you) pays the seller (the developer) 0.5% of the home's price or 5,000 NIS, whichever is lower, plus VAT. The amount is updated each year according to the Consumer Price Index. This payment goes straight to the attorney, who will issue you a receipt for it.

Optional costs and payments

The following costs, unlike those above, aren't mandatory. Even so, it's worth paying for these services — think of them as an insurance policy against future problems. Unlike the costs above, which the legislator set explicitly, these services are bought from professionals on the open market, so prices vary with supply, service quality, the professional's reputation, and their experience:

• Financial advisor / mortgage broker: a professional who goes over your income and expenses and consolidates, restructures, and re-spreads your loans, if you have any. They'll plan your mortgage mixture around your family's needs and future changes in income. They know the interest-rate levels at the various banks and which ones are the best fit for your loan. They know the bankers at the branches and can get the deal done quickly and well. See our service prices here.
• A real estate attorney. You'll want to hire your own attorney to represent you in the deal. They'll negotiate with the seller, go over the contract and check for hidden catches or pitfalls, line up the payment dates to work for you, and draft remedy and protection clauses in case the seller breaches their obligations. The cost is negotiable between you and your attorney; the going rate is 0.5% + VAT.
• When buying from a developer: an inspection of the home by a professional company to catch building defects. While the Standards Institute of Israel has set a series of regulations on how our homes should be built, with little oversight or enforcement, the job of catching defects falls on us. There are professional companies that check the slope of the balcony, the height of the door, the placement of the electrical outlets, the soundness of the bathroom grouting, the airflow in the ventilation ducts — and compare it all against the specifications set by the Standards Institute. The report you get from the inspection company lets you go back to the developer and ask them to fix these defects, within their liability as set out in the Sale Law.

Does this cover all the costs you can expect? Not even close. Some of the optional payments described above are just the baseline. We haven't even gotten to furniture and getting the home ready to live in.

Other costs worth budgeting for include moving, upgrading the plumbing fixtures, installing window bars, painting before you move in, and on and on. If you can, set aside tens of thousands of NIS for improvements, renovations, and the changes you'll need to make.

Good luck!