The journey of buying a residential property in Dubai can be both exciting as well as challenging. In Dubai, you can either make a purchase via cash or opt for a mortgage. Although many individuals prefer making cash payments as it seems more cost-effective, opting for a mortgage can be handy when it comes to managing finances or if you lack enough funds to pay upfront.
Are you planning to buy your dream home in Dubai via a mortgage? Read on to discover the ins and outs of making a purchase through the mortgage.
Who is Eligible for a Mortgage in Dubai?
Whether you are considering purchasing a villa, townhouse, or even an apartment, securing a mortgage in Dubai can be hassle-free, provided you meet the required criteria. Hence, the applicant must fulfill the following requirements.
- 21-65 years old
- Resident or national of UAE
- Have an income of AED 15,000/month if you are salaried and AED 25,000/month if you are self-employed.
Nonetheless, it’s imperative to note that the minimum required salary for a home loan in Dubai may differ across banks. Some banks might allow residents of the UAE with a monthly income of AED 8,000 to apply for a mortgage; however, this depends on individual bank policies.
In Dubai, non-residents also have the option to look into mortgage possibilities. Nevertheless, their choices are somewhat limited because only a few banks cater to mortgages for them.
REMEMBER: Some banks may impose additional requirements for qualifying a mortgage, including minimum duration at the current job or employment with specific employers, etc.
Which Documents are Essential for Securing a Mortgage in Dubai?
Albeit the specific requirements may vary slightly among different banks, the following documents are essential for applying for a mortgage in Dubai:
- Bank statements covering the last six months
- Pay slips
- Copy of the passport and visa
- Copy of Emirates ID
- Recent statements of credit cards
- A salary certificate
- Evidence of residence, which can include a copy of your tenancy contract or DEWA bill
Additionally, for non-residents applying for a mortgage in Dubai, the documentation is relatively simpler, requiring:
- Copy of the passport
- Bank statements for the last three months
How to Determine Which Property Fits Your Budget?
Having a clear picture of your financial situation not only streamlines your property search but also safeguards you from the unnecessary financial strain that comes with a mortgage.
To see which property aligns with your budget, here are the key expenses you should be mindful of:
- Mortgage payments for every month
- Down payment
- Purchasing cost (a one-time fee when acquiring property)
Next, assess your financial landscape to gauge what you can realistically afford. Consider the following factors that have a significant impact on your affordability:
- Monthly income
- How much do you spend a month on average?
- Liquid assets such as funds in savings or checking accounts
- Monthly liabilities, including loans, etc.
Thus, begin by evaluating what down payment and purchase cost you can comfortably manage from your savings. Here’s a step-by-step approach:
- Review monthly income, expenses, and liabilities
- Determine a suitable mortgage payment
- Include a buffer for unforeseen monthly variations in expenses
PRO TIP: Avoid investing 100% of your savings in the property to account for any unexpected financial assistance.
What is a Stress Rate?
The stress rate is an interest rate employed by banks to evaluate whether a borrower can manage mortgage payments in the event of a rise in interest rates. Here are some of the characteristics of the stress rate:
- It tends to be higher than the actual mortgage rate.
- It serves as a measure to assess your financial stability.
- Its purpose is to prevent borrowers from facing financial hardship in case of future increases in interest rates.
How to Get a Mortgage in Dubai?
Here’s a comprehensive step-by-step guide on how to secure a mortgage for your dream home.
1. Locate a Lending Institution
Banks serve as the the primary source of home mortgages, and these institutions should be officially registered with the Dubai Land Department for legal validity.
Also, you can either approach your bank directly to explore their mortgage offerings or use the services of a broker to secure the best mortgage deal in Dubai on your behalf.
That’s because mortgage brokers possess significant insights into the local market and available home loans, streamlining the process so you can focus on finding the right home.
2. Choose the Right Mortgage in Dubai
Dubai offers numerous types of mortgages, mainly falling into fixed-rate and variable-rate categories. Hence, when deciding on the right home loan for your situation, consider factors including:
- Lifestyle
- Type of property you are aiming to purchase
- The required loan amount and the manageable cash deposit
PRO TIP: Most banks provide online mortgage calculators to help you estimate monthly installments based on the applicable house loan interest rate in Dubai.
3. Obtain Pre-Approval
One of the crucial steps in the Dubai mortgage application process is obtaining pre-approval. It’s a formal document from the bank, serving as proof of eligibility for house finance.
Moreover, a pre-approval letter specifies the maximum borrowing limit and assures securing a home loan.
4. Find Your Ideal Residence
With both pre-approval and a budget, now it’s time to explore the ideal residence you are aiming to buy. Also, pre-approval letters usually last for 60 to 90 days, subject to the lender. This timeframe provides you with sufficient opportunity to explore and find your desired property.
Sometimes, individuals opt to discover their preferred property before seeking a mortgage. It may work, but there is a risk of not securing the complete amount of home financing required to make the purchase.
5. Finalize the Purchase
After finding the ideal property, you can contact your lending institution to settle the mortgage agreement. A lending institution might appoint an appraiser to determine the chosen property’s value, aiding in making a competitive offer.
Once you and the seller have agreed on a mutually acceptable price, submit the deposit and set a completion date for the deal.
The bank will release the loan payment to the seller on the scheduled day of the property transfer, officially transferring ownership of the property to you.
Does it Make Any Difference Whether You Get a Home Mortgage from a Local Bank, an Islamic Bank, or a Global Bank?
Avoid worrying about whether it’s a local bank, a global bank, or an Islamic bank when it comes to choosing a bank for the mortgage in Dubai. What really matters is
- Customer service
- Convenience
- Interest rates
- Fees
REMEMBER: The locality of the bank doesn’t matter as long as they have a central bank license.
What is Debt-to-Service-Ratio?
The Debt-to-Service Ratio is a metric utilized by lenders to assess borrower’s capacity to meet mortgage loan repayments.
As a result, a lower DSR is more favorable, indicating a lower level of debt relative to your income and a higher likelihood of timely mortgage payments.
Moreover, lenders usually establish a maximum debt-to-service-ratio requirement for mortgage qualification, which can vary between lenders and types of mortgages.
The Central Bank of UAE has set a maximum DSR of 50% for mortgages, indicating that your total debt obligations, including the proposed mortgage payment, should not exceed 50% of your gross income.
Should You Secure a Mortgage in Dubai Before or After Finding the Dream House?
While it is a common belief that applying for a mortgage should happen later in the home-buying process, making your mortgage search the initial step in your quest for your dream home. Here’s why:
Clarity on Affordability
Getting into the details of purchasing costs, monthly mortgage payments, and other crucial aspects at the outset provides a clear understanding of the types of properties within your financial reach. Also, this knowledge can help you narrow down your search to homes that align with your budget.
Pre-Approved Mortgage
A pre-approved mortgage serves as a valuable asset to have when looking for a home. It not only positions you as a committed and serious buyer when making offers, but it also increases your negotiating power in the real estate market.
What’s more, conducting your mortgage search before embarking on the home search allows you to promptly make an offer when you find the property of your dreams.
Also, by having this information in advance, you can navigate the mortgage process at your own pace, avoiding the pressure of time constraints that often arise when fearing the potential loss of your dream home.
Choosing Mortgage Provider: Independent Mortgage Advisors or Banks?
Securing a mortgage in Dubai can be achieved via two main channels, either directly through a bank or by collaborating with an independent mortgage advisor/company.
Therefore, it’s essential to evaluate the pros and cons of each approach prior to making a decision.
Independent Mortgage Companies/Advisors
Securing a mortgage loan via independent mortgage advisors has both perks and cons.
PROS
Cost Saving
Independent mortgage companies may present cost advantages, offering potentially lower application, processing, or early repayment fees as compared to banks.
Diverse Mortgage Solutions
These firms collaborate with several lenders, providing customers with an extensive selection of mortgage solutions featuring different terms and interest rates. This diversity enables customers to discover a mortgage plan that aligns with their requirements and financial situation.
Personalized Experience
With dedicated mortgage advisors on hand, borrowers can receive guidance tailored to their specific needs, making the entire process more client-centric.
CONS
Lack of Transparency
Independent mortgage advisors/companies operate without the regulatory oversight of the Central Bank of the UAE. This lack of governance raises legitimate questions about the security and transparency of their process.
Limited Lender Collaborations
Some independent mortgage companies may have restricted partnerships, collaborating with only specific lenders or having limited access to the range of mortgage options offered by the banks.
Higher Interest Rates
Due to their engagement with riskier customers or the provision of more flexible conditions, independent mortgage companies might charge higher interest rates.
Getting a Mortgage via a Bank
Getting a mortgage directly through a bank has its perks and drawbacks.
PROS
Better Interest Rates
If you are already tied to a specific bank, obtaining a mortgage with them might be quicker and more straightforward. You could also land better interest rates or terms.
Transparency
Banks, regulated by the Central Bank of the UAE, offer a reassuring level of security and transparency in their mortgage dealings.
Offer Flexibility
With a variety of mortgage products featuring different terms and rates, banks provide flexibility for borrowers to pick an option that aligns with their needs.
CONS
Limited Options
Banks limit you to their mortgage products. If you are seeking a broader selection of options or interest rates, considering an independent mortgage company might be wise.
Higher Costs
Be prepared for potentially higher application fees, processing fees, or early repayment charges compared to what independent advisors might offer.
Strict Criteria
Banks usually enforce more stringent eligibility requirements and demand specific supporting documents, making the mortgage application process more demanding for some customers.
Pre-Qualified and Pre-Approved: Understanding the Difference
As you explore the world of mortgages, you may encounter terms like pre-qualifying and pre-approval. Despite the common interchangeability of these terms, they actually refer to distinct processes. Here’s what they mean/
Pre-Qualifying
It provides a rough estimate of the amount you can borrow based on the provided information. Nonetheless, it doesn’t provide an in-depth analysis of the finances. It’s a preliminary step toward determining your borrowing potential.
Pre-Approval
In contrast, pre-approval involves a conditional commitment from a lender to grant you a mortgage if predetermined conditions are met.
Moreover, to make a commitment, the lender thoroughly assesses your financial status, providing a more accurate evaluation of the risk associated with lending to you.
Additionally, the comprehensive financial analysis in the pre-approval process gives it more weight because
- Negotiation Power: Establishes you as a serious buyer, increasing your bargaining power when making an offer.
- Expedite Mortgage Process: Simplifies the mortgage application procedure.
Hence, it’s imperative to note that the validity of pre-approval can vary among banks.
How Reversion Rate is Calculated?
The reversion rate is the interest rate that takes effect once your mortgage’s fixed-rate period expires.
Also, some people opt for a 1-3 or 5-year fixed-rate mortgage, ensuring steady monthly payments during that term.
Once that timeframe ends, your interest rate will be determined by the reversion rate. Moreover, lenders in the UAE calculate this rate by adding the Emirates Interbank Offered Rate to the bank’s margin.
Reversion Rate = EIBOR Rate + Bank Margin
For instance, a lender might pitch a mortgage with an interest rate such as [EIBOR + 3%], meaning your rate equals the current EIBOR rate plus an extra 3%.
Given that EIBOR varies, your monthly mortgage payments will also fluctuate.
PRO TIPS
- Compare the margins of different banks, as they influence how much your monthly payment will change after the fixed rate period.
- Make sure to inquire about the bank’s floor rate. It is the minimum interest rate after your fixed-rate period. Some banks may set a higher floor rate than others.
Exploring Different Types of Mortgage in Dubai
When it comes to mortgages in Dubai, the city has so much to offer. Here’s a list of some of the most prevalent choices.
Variable-Rate Mortgages
Choosing a variable-rate mortgage adds a dynamic component to the interest rate. This rate is sensitive to shifts in market conditions throughout the loan term.
Consequently, your monthly payments might fluctuate, posing a challenge to accurately budgeting for the mortgage.
On the other hand, if market interest rates decrease, your monthly payments may decline as well.
Islamic Mortgages
Islamic mortgages are designed to align with Sharia law, which strictly forbids the exchange of interest. Hence, these mortgages follow a co-ownership model, where both the bank and borrower jointly own the property, with the bank charging rent for its share.
Off-Plan Mortgages
Off-plan mortgages cater to individuals buying an off-plan property (that is still under construction). Typically, these mortgages necessitate a higher down payment and potentially higher interest rates.
Despite these considerations, they present an attractive opportunity for investors aiming to secure a property before its completion.
The potential for a substantial increase in property value by the time of completion makes off-plan mortgages a compelling choice.
Fixed-Rate Mortgages
A fixed-rate mortgage ensures that the proposed interest rate stays constant for the entire duration of the loan. This results in consistent monthly payments, offering a reliable and predictable repayment schedule.
Also, for those seeking the security of a fixed monthly payment and aiming to avoid the impact of interest rate fluctuations, fixed-rate mortgages can be very handy.
Hence, it’s important to understand the nuances of each type as it assists in making an informed decision that aligns with your financial goals.
Selecting the Ideal Mortgage in Dubai—Tips and Tricks for a Successful Deal
The best mortgage product is the one that aligns with your individual needs, and here’s what you need to take into account for finding the optimal product.
Select a Lender With a Transaction Cycle that Suits Your Needs
The time it takes to receive your mortgage post-document submission is known as the Transaction Cycle.
This period varies across banks, ranging from as short as 10 days to as long as 10 weeks. Hence, it’s crucial to opt for a bank with a transaction cycle that aligns with your timeline.
Ask about the Mortgage Repayment Duration
In simpler terms, tenure refers to the time you get to pay back your house loan. For example, some banks approve a longer tenure, up to the age of 70, implying you can make payments until you turn 70. This is one of the vital factors to consider when comparing different mortgage products.
Beware of Hidden Costs
Choosing a mortgage solely based on the lowest interest rate might not be the most suitable option. Numerous hidden fees, such as insurance costs and valuation charges, contribute to the overall expense.
It’s advisable to consult your mortgage advisor to thoroughly understand the total cost, known as the annual percentage rate. APR includes
- Interest rate
- Mortgage insurance and any associated fees
Free free to read our guide on how can Indians buy property in Dubai.
FAQs
Q: How much Deposit is Required to Purchase a House in Dubai?
A: The minimum down payment requirements for Dubai mortgages vary based on property value.
For properties valued up to AED 5 million, UAE nationals are required to make a 15% down payment, while expat residents need to pay 20%.
For properties exceeding AED 5 million, the minimum down payment increases to 30% for residents and 35% for foreigners.
Q: What is the Duration of the Mortgage Process in Dubai?
A: In Dubai, securing a mortgage takes approximately two weeks, including the time needed to obtain a pre-approval for the application.
Takeaway
Considering a mortgage for buying a residential property in Dubai is a popular choice. To navigate this process successfully, ensure you meet eligibility criteria, provide the required documents accurately, and select a bank, mortgage, and property that aligns with your needs.
However, it’s crucial to remember that securing a loan is a significant commitment; hence, evaluate all aspects of your budget before proceeding.
You can also read our detailed guide on how to buy a property in Dubai.