Eligibility Loan - The Good, the Bad, and the Ugly

An eligibility loan is a loan granted under a law enacted in 1992. According to the law, the state allows first-time homebuyers to receive a loan of a variable amount determined for each family based on the number of points they have accumulated in the Ministry of Housing's eligibility calculator. You can calculate your eligibility. On the eligibility calculator. 

A little history (you can also skip)

In 1992, the government decided to assist young couples purchasing their first apartment. The form of assistance determined was the granting of a loan with preferential and fixed terms set by the state, or even a grant. The loan amount varied from family to family according to various criteria that determined theScoring of the family. The criteria, like many other things, were based on political compromises: on the one hand, bonus points for those serving in the army or national service, and on the other hand, bonuses based on the number of children and siblings of the parents.

During those years, the eligibility loan represented a tremendous benefit for families. Its interest rate was 4.1% index-linked, compared to a market rate of approximately 6.1% index-linked. The loan amount was substantial. In fact, first-time homebuyers often made do with the eligibility loan alone, while the standard bank loan was referred to as Supplemental loan.

The right-to-buy loan was received by the borrower through one of the mortgage banks, which served as a conduit for the state to transfer money to the borrower on the one hand and collect payments on the other. This made sense in those years. Managing loans in days of unsophisticated computers was a complex matter, and in any case, the banks that granted mortgages, Leumi, Poalim, and Tephachot, were still state-owned after being nationalized (the 1983 crisis) to prevent their collapse following improper actions by bank executives (stock manipulation led to the indictment of bank executives and the loss of approximately $10 billion). Thus, the state, which owned the mortgage banks, decided to utilize them (in exchange for a fee, not for free) to manage the right-to-buy loans with the public.

Scoring method

The scoring system determines whether you can receive a qualifying loan and in what amount, based on criteria set by the state (years of marriage, number of children, number of parents" siblings, years of military service, etc.). For example, years of marriage are "priced" as follows:

The number of children is "priced" as follows:

To be clear, two years of marriage are worth 300 points, not 550 (250+300); if there are two children, you get 500 points, not 850 (350+300).

Years of military service add 1% for each year of service to the total loan amount calculated above.

To enter the eligibility loan track, a minimum of 1,000 points must be achieved, and then the loan amount is determined by the total points earned. The mechanism is complicated, annoying, and as is customary in our region, it changes according to the preferences of the ruling government at that moment (what is better for the country to reward: military service or the number of children in a family? Depends, of course, on whom you ask). The sum of the currently accepted rules can be seen On the Ministry of Construction website.

The more points there are, the higher the total amount of the eligibility loan.

Until 2016

Many blocks have been laid since 1992 and many apartments have been built. The economic environment has changed completely:

• The state sold the banks to private entities and now they are primarily interested in the bottom line.
• Interest rates in the economy fell, and so over the years, the eligibility loan (which, as you may recall, is indexed to the 4%) became irrelevant because regular loans were being offered at much lower interest rates. .
• Eligibility loan amounts have not been updated while housing prices have risen significantly.

For years, it was not at all worthwhile to take out a "right to housing" loan, and indeed no borrower used this instrument, which "atrophied" over the years and was replaced by other government programs such as "Price Cap," "VAT Zero" (may it rest in peace), and "Price for the Resident" as a means to assist first-time homebuyers.

Why it's not profitable for a bank to offer you an eligibility loan

Back in our day. I am writing the article after it became clear to me that many clients, including those that were at the bank before they got to me do not know about eligibility loans. I am not surprised by this. First of all, there is a rather high turnover of mortgage bankers in the branches. After years when it was not worthwhile to take an eligibility loan, a new generation of bankers has arisen who have not done this before and are not familiar with it. Beyond the lack of knowledge, there are several other reasons why the bank's mortgage lender has no reason to offer customers the eligibility loan:

It is not economical

If you were selling shoes in a store and the country decided to open a state-run shoe store next to yours with lower prices to reduce the cost of living, would you send a customer who came to you there? The bank, as mentioned, is a business that aims to earn as much as possible. It has no reason to sell a customer the state-provided entitlement loan instead of its own bank loan. Unlike in the past when the bank was state-owned and subservient to it, today the bank has a conflict of interest with the state.

It's cumbersome

Obtaining the eligibility certificate requires additional bureaucratic procedures:

• Confirmation of military service for each spouse
• Proof of siblings of the spouse
• Check if the purchase location qualifies for a location grant
• Document inspection and certificate deposit.

All these processes are the responsibility of the bank clerk, who is required to carry them out only so that the bank actually profits less. Furthermore, clerks are measured by the number of mortgages they sell. The faster the clerk finishes explaining to the family, the faster they will approach meeting their targets or simply be able to dedicate more time to the kindergarten's WhatsApp group ("Yoohoo, how cute!!!!!!"). This creates the "thirds-thirds-thirds" mix, which many clients think is an instruction from the Bank of Israel. Explaining to the family about something else called eligibility, with its advantages, disadvantages, and reception hours at the complex in Tel Aviv (military service approval), is considered an unnecessary burden in the eyes of the clerk and the bank.

As noted above, the bank has no reason to teach its clerks about the advantages of eligibility loans for some mortgage borrowers. Even if some training has been transferred to the clerks, they will often prefer not to offer the eligibility loan for the reasons detailed above. You, on the other hand, would be well advised to be familiar with this tool, which is ultimately designed to help you purchase an apartment.

When to use a VA loan

You should consider using entitlement loans in certain situations. It will be divided into three parts: the good, the bad, and the ugly. First of all, you should check if you are eligible for this loan. You can check this On the eligibility calculator.

Eligibility Loan - The Good

Interest rate

The loan is being processed through the track Fixed interest rate linked to the index. There isn’t enough space here to review all the pros and cons of this option, but if you’ve decided that a fixed-rate mortgage is right for you, then with an eligibility loan you may be able to secure a competitive interest rate. The terms are set at the lower of 3% and the average interest rate minus half a percent. Strong borrowers may be able to secure a better interest rate on their own. Naturally, when there is an average, there are also many who fall below it anyway.

Recycling

Once in the life of the loan it can be refinanced without a regular refinancing process, but rather a streamlined one, meaning, in general, you inform the bank that you wish to convert it to a regular loan. Additionally, it is possible to shorten this loan and increase the monthly payment (for example, if your salary increased or if another plan ended and a monthly budget became available for payments on this loan).

Early repayment

In a guaranteed eligibility loan, the option of early redemption is available at any time without an amortization fee (early redemption penalty).

Exception Committee

In a "zaka'ut" loan, in addition to the bank providing the regular loan, the Ministry of Housing is also a partner in financing the apartment. If the borrower is unable to meet the mortgage payments, there is an additional procedure before the eviction process from the apartment begins. As part of this procedure, an exceptions committee convenes with the participation of the bank and representatives of the Ministry of Housing. In most cases, the committee decides (as much as possible) to restructure the loan so that the monthly payment decreases (and the total payment increases). It should be noted that even with regular loans, the bank almost always prefers restructuring over foreclosure.

Loan Qualification - The Bad

Loan amount

Eligibility loans are provided in amounts that are small relative to average apartment prices. There are borrowers who will receive slightly larger amounts, say 200,000 shekels, and then purchase inexpensive apartments in the periphery, and then the share of the eligibility loan begins to be significant. For most buyers, it's about a small loan.

Bureaucracy

For a mortgage for the right to buy, additional bureaucratic procedures must be followed, such as Confirmation of Military Service and the ID numbers of brothers and sisters living in the country for the purpose of issuing a certificate of eligibility. The certificate of eligibility is issued by the bank from which the mortgage is taken. In fact, it turns out that after we finished negotiating with the bank and agreed on which bank we would take the mortgage from, a need for an additional process arose for integrating the eligibility loan. This may complicate the entire negotiation due to the short validity of the mortgage interest rates.

Mortgage Eligibility - The Ugly

The state has effectively given banks the right to represent it in selling a product that competes with the bank's own product and at a lower price. In other words, bank employees are supposed to sell the state's entitlement loan, which reduces the bank's profits. To make the matter even more illogical, the entitlement loan causes more work for the employee themselves.

In summary, the bank is supposed to encourage citizens to use a product that reduces its profits, and the person actually doing this should be a banker for whom the right-to-loan would result in extra work compared to a regular mortgage.

Guess what the result is? Few entitlement loans. So, there are banks that, so they don't say they are not in favor of citizens, sign an entitlement loan waiver document along with the mortgage documents. Meaning, the customer, who has already signed 50 documents, signs another document without reading, and it says there that they know about entitlement loans but choose not to use them. As mentioned, ugly.

Eligibility loan documents

The entitlement loan amount is determined according to the borrower's data based on various parameters such as months of service in the IDF, number of children, number of siblings, etc. You can perform the amount calculation From the eligibility calculator here. This section is designed to present the eligibility loan documents so you can get them all easily and at once.

To receive the loan, you must fill out Affidavit of siblings:

וAs approved by IDF service It can be obtained from here –
https://ishurim.prat.idf.il/Account/Login?ReturnUrl=%2f or by phone at 1111 (four ones).

Or a confirmation of national service at a non-profit organization.

Marriage certificate. A couple that is not married but is known to the public is required to fill out Declaration of common-law partners:

You can obtain the eligibility certificate at any bank branch with a mortgage desk. Since issuing the certificate takes time, it's advisable to obtain it even before choosing a bank and then transfer it to the relevant bank. It's cumbersome, but that's the situation.

Summary

The eligibility loan is not suitable for everyone. It is given in a small amount. On a track that is doubtful whether it is worth taking at all (fixed linked) and with added work and bureaucracy which may harm negotiations.

In any case, it is worthwhile to familiarize yourself with this product to make an informed decision on whether to use it.

Good luck.