What you should know before securing a mortgage in Dubai

Are you planning to buy a property in Dubai? There are two ways to buy a property in Dubai. The first is through cash, and the second is through a mortgage. You won't have to plunge into much paperwork and hassle if you pay in cash. However, the process becomes a little complicated if you plan on getting a mortgage to buy a property. So, here are a few things you must consider before getting a mortgage for your new home.

Eligibility Criteria to Acquire Mortgage

First, you must meet the eligibility criteria to secure a mortgage in Dubai. It is as follows

• An applicant must be a UAE national or resident.
• An applicant's age must be between 21 and 65.
• An applicant must have a monthly income of AED 15,000 if salaried or AED 25,000 if self-employed.
• Foreigners must have worked in their current job for at least six months.
• Self-employed individuals must show evidence of running their enterprise for at least two years.

A few banks also allow non-residents to apply for a mortgage in Dubai.

Documents Required to Acquire a Mortgage in Dubai

You must submit and get the following documents verified by the bank to acquire a mortgage.

• Copies of valid visa and passport
• Copy of Emirates ID
• Proof of income
• Salary slips and bank statements (last six months)
• Proof of residence (DEWA bill or tenancy contract)
• Credit card statements

Non-residents need to provide the following documents:

• Copy of passport
• Bank statements (last three months)

Loan-to-value Ratio and Downpayment

Loan-to-value ratio (LTV) is the banking term for a mortgage limit, which represents the percentage of the property's value that a bank or lender will finance through a mortgage. As per Dubai mortgage law, if you apply for a mortgage for the first time, banks can give up to 80% of the property's value. The borrower will arrange the remaining 20% of the initial deposit (downpayment). If you are applying for a mortgage for the second time or have a mortgaged property, the downpayment will be up to 35% for UAE nationals and 40% for expats.

It usually takes ten working days to receive the mortgage offer letter.

Consider Between Fixed or Variable-Rate Mortgages

You should know that there are two main options for getting a mortgage: a fixed-rate mortgage or a variable-rate mortgage. 

Fixed-rate mortgage: The interest rate stays the same for a set period.

Variable-rate mortgage: The interest rate changes depending on the Emirates Interbank Offered Rate (EIBOR), updated every 1, 3, or 6 months. The bank also adds a fixed percentage to this rate, so your interest could go up or down.

Current mortgage interest rates are around 2.99 - 5%. The UAE dirham is pegged with the US dollar, meaning the UAE interbank rates follow the US Reserve's. This has big implications for UAE interest rates as the US reserve has recently been moving towards ending the very low interest rates seen over the past decade. As such, buyers might want to consider getting a fixed-rate mortgage to secure a low interest rate while it remains low. 

That being said, there are some downsides to fixed rates. The longer the fixed rate is set, the more costly it is. Buyers should be wary of revision rates. These are the interest rates you will pay once the fixed-rate period expires, which are most often linked to the 3, 6 or 12-month EIBOR, plus the margin set by the bank. Low upfront rates may seem reasonable, but they may become more expensive in the long run due to the revision rates.

Please read Understanding Mortgage Options: A Comprehensive Guide for Home Buyers

Budget, Pre-Approval, and Agreement Clauses

Prospective buyers should decide on their budget and secure pre-approval from their chosen bank before starting their property search. This step is crucial because a sales agreement requires a 10% down payment. If you proceed to this stage without pre-approval and later get refused by the bank, you will forfeit the 10% down payment.

Buyers should also ensure they insert a clause in the purchase agreement (MOU – Memorandum of Understanding) that the purchase transaction is subject to the bank's final approval and the bank valuing the property at the agreed purchase price. This is to ensure that the deposit is safe should the bank decline the mortgage or consider the property overvalued and, therefore, decide not to give the buyer the full mortgage amount needed. 

Use a Mortgage Broker

A mortgage broker will understand the market and your requirements. They can place you with the best mortgage, whichever bank suits you. It can be tricky and complicated to navigate the different banks, weigh up the mortgage options, and determine what needs to be done. Whether it is the decision between fixed-rate and variable-rate mortgages, calculating all the different costs, or deciding which bank to go for. Therefore, a mortgage broker will help explain any complicated language you may not understand and how the process works from beginning to end. We suggest you speak to a few brokers to see who you like and want to use. As a potential buyer, you should consider using a mortgage calculator to determine your monthly payments. This will help you determine what mortgage you can afford and what type is best for you. Using a mortgage calculator will help you plan for when you eventually decide to get the mortgage. 

Our mortgage calculator is easy to use and efficiently estimates monthly mortgages on any property. Do give it a try.

Conclusion

Buying property in Dubai through a mortgage can be challenging, but with the right preparation, it can be manageable. Ensure you understand the basics, know your needs, and get professional help if necessary. With careful planning and the right resources, you can make the process smoother and more straightforward.

At Betterhomes, our specialists offer personalised mortgage solutions to make the process smooth and stress-free. Contact us today to explore your options and secure the best rates!

Please refer to our blog, "What is the Process of Mortgage in Dubai," to understand the complete process involved in securing a mortgage.