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Buying an apartment · 7 minutes of reading

Self-build mortgage: budget, appraisals and release of funds in stages

How to plan a mortgage for the purchase of a lot and self-construction, what documents are required and how to prevent a flow gap between the construction stages.

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A mortgage for self-construction is examined according to the rights to the land, permit and plans, appraisals, detailed budget, equity and ability to repay. The money may be released in stages depending on the progress and the bank's checks. That's why you need to plan in advance a reserve for deviations, order of payments to contractors and a possible gap between the actual expenditure and the date of release of the money.

Written and professionally reviewed by the Ailon Financing Solutions team

Self-build is not a normal purchase transaction. Instead of one contract price and one delivery date, there is land, planning, a permit, professionals, milestones and a series of payments. The mortgage should fit this process and not just the estimated final cost.

What is the bank looking at?

The inspection may include the rights to the land, the plan and the permit, appraiser's assessment, construction budget, sources of equity, income and liabilities. Even when there is a regulatory financing ceiling, the bank may approve a lower amount or rate according to the property, the documents and the risk.

According to the Bank of Israel's questions and answers on the subject of housing loan limits, the maximum financing rates for the purchase of a plot for self-construction and the construction financing are derived from the type of apartment. The actual classification and calculation require individual examination, and the ceiling should not be considered a credit approval.

Build a budget in stages

A useful budget separates the land purchase, planning and consultants, licensing and fees, development, skeleton, systems, finishing, infrastructure connections, supervision and reserve. A payment date and source of money are attached to each section: equity or expected release from the bank.

You should have three scenarios:

  1. Base budget according to proposals and specifications.
  2. Updated budget after planning and permission.
  3. A conservative scenario that includes exceptions and delays.

Release of funds and the flow risk

A construction loan may be released for installments. The bank can require documents or an inspection of the stage performed before further release. In the meantime, the contractor or supplier may demand payment. The gap between the two deadlines is a flow risk that needs to be planned in advance.

Do not sign a payment schedule assuming that the bank will release a certain amount on a certain date. We ask the bank for a written explanation of the terms, milestones and documents, and compare it to the agreements with the professionals.

Tests before committing

  • Current confirmation of rights and the registration status of the land.
  • Plan, permit and requirements of the land owners or the Israel Land Authority, if applicable.
  • Appraisals relating to the land, cost and expected value after completion.
  • Detailed budget and realistic payment schedule.
  • A reserve that does not depend on the next release from the bank.
  • Insurance, collateral and registration of the mortgage in accordance with the requirements.

start withThe equity calculator and inThe mortgage calculator, but replaced the price of the apartment with the full budget for the land and construction. Then prepare Personal document list and check the flow with a consultant.

Official sources

The information is general and does not replace a legal, planning, appraisal and financial examination of the land and the project.

from the information for personal inspection

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More questions

Is the financing rate for self-construction different from buying an apartment?

According to the Bank of Israel's questions and answers to Instruction 329, the financing rate ceilings for the purchase of a plot for self-construction and the financing of the construction are derived from the classification of the apartment, similar to the purchase of any other right to real estate. This is a regulatory ceiling and not an obligation of the bank to approve the full rate.

Do you receive all the mortgage money at the beginning of construction?

This is not usually assumed. The bank may arrange the loan in stages according to documents, appraisals and actual progress. The exact release schedule is determined in the bank's approval and documents, so the engagements and payments should be adjusted to it.

Why do you need a reserve beyond the contractors' budget?

Design changes, excluded works, price increases, fees, development and delays may increase the cost. Without a reserve, a gap may arise before the bank approves another release, even when the total budget seems sufficient on paper.

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