How to Finance Your First Property Purchase in the UAE

Financing your first property purchase in the UAE in 2024 involves understanding different mortgage plans, relevant qualifications, and related expenses. This simplified post will walk you through the essential steps to secure financing for your new home.

Understanding Types of Mortgage Options

You must know your mortgage options to buy your first property in the UAE in 2024. The UAE has many mortgage products designed to match various financial needs and likes. Let’s examine different mortgage types, their details, and considerations for would-be homeowners.

1. Fixed Rate Mortgages:

These are loved by first-time homebuyers. The interest rate stays the same for the entire loan period, usually 1 to 25 years. This simplifies budgeting, as monthly payments don’t bounce around with market interest rates.

A fixed rate offers peace of mind in the UAE’s varying real estate market. It protects you from sudden interest rate increases. But remember, fixed-rate mortgages often start with higher initial rates than variable-rate choices.

2. Variable Rate Mortgages:

These are also called adjustable-rate mortgages. Their interest rates can alter based on market conditions, tied to the Emirates Interbank Offered Rate (EIBOR). They generally start with a lower interest rate than fixed-rate options, attracting buyers wanting low initial costs. But, unpredictable rates are a risk. If rates go up, so do payments, which might stress your budget.

Buyers should be careful, especially in the UAE, where rates align with the US Federal Reserve’s monetary policy.

3. Discounted Rate Mortgage:

These temporarily decrease the standard rate for a certain period, often the loan’s early years. It can save you money initially. But, when the discount ends, your payments will go up.

4. Offset Mortgages:

These fewer standard mortgages connect a buyer’s savings account to their mortgage. The savings account balance reduces the mortgage amount, cutting interest charges. It can lead to lower monthly payments and a shorter loan time. For people with plenty of savings, this can be a clever route for handling mortgage costs.

Eligibility Criteria to Qualify for a Mortgage

Getting your first property in the UAE? Know the rules to get your loan approved. Different banks have different rules, but some standards are common everywhere. To qualify for a mortgage in the UAE, consider the following:

1. Age Requirements:

Let’s talk about age first. It’s 21. That’s the earliest you can apply for a loan. Why? Because that’s when you’re legally old enough to sign contracts.

The maximum age limit varies between lenders but typically ranges from 65 to 70 years at loan maturity.

If you take a loan at 21, you usually have till 65 or 70 to finish paying it off. It depends on who you loan it from.

2. Nationality:

Within the UAE, mortgages aren’t just for locals. Expats can apply, too! Yet, there may be slight changes in the rules for each group.

For example, expats may have a few more hoops to jump through. They may need larger down payments or face limits on loan amounts.

Specific banks may have rules about who they lend to based on nationality. So, always check with your chosen lender for the details.

3. Employment Status:

Earning money can make or break your shot at a mortgage! Lenders generally divide applicants into salaried employees and self-employed business owners.

There are certain things salaried employees must bring to the table:

• Minimum Monthly Earnings: On average, the bank wants you to earn at least AED 10,000 to AED 12,000 a month. This helps prove you can handle your mortgage payments.
• Job Tenure: Holding the same job for six months shows you have consistent cash flow.

Now, let’s talk about self-employed applicants. They face slightly different rules:

• Minimum Monthly Income: Most of the time, self-employed individuals must show they make around AED 20,000 monthly. It’s crucial to show a consistent income.
• Business Age: The company should have been doing well for two to three years and has a proven track record of generating consistent income.

4. Credit Score:

Your credit score matters when getting a mortgage in the UAE. Banks look at how you’ve managed debt to decide your reliability. A good score is an excellent chance of approval. Also, you might get a cheaper loan rate!

But watch out; a poor score can mean expensive rates or your loan might not go through. Before you apply, check your credit report. Fix any problems that could lower your score.

5. Debt-to-Income Ratio:

The debt-to-income (DTI) ratio is another critical factor lenders consider. This ratio compares your total monthly debt payments to your gross monthly income.

In the UAE, lenders typically prefer a DTI ratio of 50% or lower, meaning your total monthly debt obligations, including the prospective mortgage payment, should not exceed half of your monthly income.

This guideline helps ensure borrowers comfortably manage their mortgage payments without financial strain.

6. Documentation:

To apply for a mortgage, you will need to provide various documents, including:

• Proof of identity (passport, residence visa)
• Salary certificates or business financial statements
• Bank statements for the last six months
• Property documents (if applicable)

Lenders may request additional documents based on their underwriting requirements.

Costs Involved in Financing Property in the UAE

When financing property in the UAE, you’ll need to check other costs than the price tag. There are additional costs. They usually make up 7-8% of the property’s worth. What are these fees? They include government charges, realtor fees, mortgage expenses, and other sundry charges.

For example, the Dubai Land Department (DLD) demands a registration fee. It’s roughly 4% of the property’s value plus an extra AED 580 for apartments and offices, AED 430 for lands, or AED

40 for up-and-coming properties. It validates the deal and lets ownership switch hands.

Also, there could be real estate agent fees. They’re pretty big, too, generally 2% of how much you buy the property for plus 5% VAT. The agent’s job is to help you find the property, drive a hard bargain on the price, and steer you through the buying process.

If you’re getting a mortgage to buy a house, remember these extra costs:

• You’ll pay a Mortgage Registration Fee. This is 0.25% of how much you borrow, plus AED 290.
• Banks will charge you a Mortgage Arrangement Fee, usually 1% of the total loan, plus 5% VAT.
• You must pay a Property Valuation Fee, often between AED 2,500 and AED 3,500 plus 5% VAT. This covers the bank checking how much the property is worth.
• Remember, the conveyance fee is for legal purposes. It’s usually between AED 5,000 and AED 10,000. If the house you want has a mortgage on it already, you’ll need a No Objection Certificate (NOC). This can cost from AED 500 to AED 5,000.
• You’ll need Home and Contents Insurance, too. This is about AED 1,000 and covers the loss or damage of items in your home.
• Lastly, if you have a mortgage, you need Life Insurance. This usually is 0.4-0.8% each year based on your remaining loan balance.

9 Steps to Secure Financing

Securing finance for your first UAE property may be tricky. Yet, with a structured plan, you can do this successfully. Here’s an easy guide to getting financing in 2024.

Step 1: Assess Your Financial Situation

First up, look at your money situation. Before entering the world of home loans, check your financial strength. Add up your monthly income, debts, and spending. This will show what you can pay for a home loan.

UAE banks commonly use the Debt-Burden Ratio (DBR) to check your borrowing power. The DBR is your monthly debts (including the future home loan) versus your monthly earnings. Your monthly pay should be four times the amount of your expected loan payback.

This check-up will clarify your financial status and help create a practical budget for buying property.

Step 2: Research Mortgage Options

With your budget, it’s time to look at different home loan options. As we already told you, there are fixed-rate, variable-rate, discounted-rate, and offset mortgages in the UAE.

Fixed-rate home loans keep the interest penalty the same for a certain period, which helps with financial planning. Variable-rate home loans change depending on the Emirates InterBank Offered Rate (EIBOR).

Discounted-rate home loans give a temporary discount on the usual changing rate and offset home loans tie your savings account to your loan.

Knowing these choices will guide you in picking a home loan that matches your financial aims and risk comfort.

Step 3: Get Pre-Approved for a Mortgage

Make sure you secure your mortgage pre-approval. It’s essential in finance. You’ll send a primary application to a lender. They’ll look at your money situation and your credit.

Pre-approval tells you how much you can borrow. It shows sellers you’re serious. You’ll need pre-approval proof of your Emirates ID, passport, and income. You’ll also need details about the property you want to buy.

Step 4: Complete the Mortgage Application

With pre-approval, you move on to the official mortgage application. Here, you fill out a detailed form and hand in different documents, including:

• Emirates ID and passport
• Proof of income (salary certificates, bank statements)
• Employment details
• Property documents (if available)

Ensure all documents are accurate and up-to-date, as any discrepancies can delay approval.

Step 5: Pay Loan Processing Fees

After you apply, it’s time to pay any loan handling charges. These differ based on the individual lender. They often hover around 0.25%-0.50% of the total loan sum.

Some banks have special deals with no processing fees. However, be aware that these usually mean higher interest rates.

Step 6: Document Verification

After your application, the bank looks at your documents closely. They might even visit your home to ensure your address is accurate and check your documentation.

The bank will also look into the property you hope to purchase, requiring the original papers and seller information. This step is super important, ensuring the property is worth the money.

Step 7: Site Estimation and Technical Check

The lender will inspect the property to determine its condition and market worth. This examination is critical to determining how much a loan should be and whether the property is a good investment.

If you buy an existing property, the bank might physically inspect it to judge its age, maintenance, and overall quality.

Step 8: Final Approval and Loan Offer

After checking the details, the bank will approve or reject the application. If it’s approved, the bank sends loan details. You’ll see borrowed cash sum, interest rate, payback terms, and rules. Be sure to double-check all this before moving forward.

Step 9: Sign the Mortgage Agreement

Once you are satisfied with the loan offer, the final step is to sign the mortgage agreement. The contract documents the loan’s terms, like when you pay and what if you’re late.

Be sure to fully understand the contract. Ask your lender to clarify anything before marking it with your signature.

Additional Considerations for Financing Your First Property Purchase

Several additional considerations can significantly impact your decision-making process when financing your first property purchase in the UAE.

1. Understanding Property Ownership Types:

There are three types of property ownership in UAE: freehold, leasehold, and usufruct rights.

Freehold properties allow full ownership. It’s yours forever in some places. Because only these specific areas allow full ownership.

Leasehold only lets you own for about 99 years. These details matter. It could change how you finance your property and judge your return on investment.

Freehold properties can be mortgaged more easily than leasehold.

2. Legal Due Diligence:

Make sure to do your homework before buying any property. You should validate its legal status and check there are no conflicts.

Hire a good real estate lawyer; they can make this easier. This is especially important if you’re an expat and need to learn local rules.

3. Mortgage Pre-Approval:

It makes your purchasing power stronger. It’s simple. Give your financial info to a bank or a finance firm. They’ll see if you’re eligible.

It puts your budget in perspective. It also shows sellers that you mean business. It could give you a negotiating advantage.

4. Alternative Financing Options:

While traditional mortgages are the most common financing method, alternative options exist.

Rent-to-own schemes allow you to rent a property with the option to purchase it later, providing flexibility and reducing immediate financial pressure.

Also, some real estate investment firms offer financing based on your ties instead of classical mortgage contracts. It’s brilliant if you have good business relations.

Final Thoughts

First-time buyers may need help with the UAE property market. Help from professionals can prove immensely useful. At Amigo, our knowledgeable team is ready to guide you. They’ll help choose suitable properties, haggle over terms, and ensure compliance with legal requirements.

Rest easy; Amigo only features premier properties from the best developers in the UAE. Your investment is safe in our hands. Please browse through our property offerings to find your perfect match. Contact us today and take a step closer to owning your dream home!