Mortgages in the United Arab Emirates are easily available for people looking to invest in property or buy a new home. There are two ways you can invest in a property in the UAE – on a mortgage or with cash.
While cash investments can prove to be cost-effective, mortgages allow for greater flexibility in terms of how you repay and manage your finances.
UAE is a fantastic destination for professionals and families alike, with a range of career opportunities and all kinds of activities for all interests and ages.
So, those looking to settle may need a new family home, and mortgage providers are well-equipped to deal with all kinds of mortgage applications – whether expat, non-residential, or residential.
Before you finalize the property, it is important that you understand how mortgages in the UAE works, the types of mortgages available in the market, and the steps required to get one set up.
This comprehensive guide explains to you the prerequisites to get your first mortgage.
Mortgages in the UAE
The United Arab Emirates has become one of the most popular destinations, especially business-friendly regions like Abu Dhabi and Dubai. With an increasing population of foreign nationals and ex-pats, the mortgage market in the UAE is well-established, with both local and international lenders offering mortgage loans.
Please note that UAE is offering both buy-to-let and residential mortgages for people living in the country. Nevertheless, different mortgages have different criteria.
There are dozens of different mortgage providers in the UAE, from globally known brands to more localized financial institutions. The range of options you have means that you need to do a lot of research in order to understand how the different products work. This helps in making an informed decision.
How Easy is it to Get a Mortgage in the United Arab Emirates?
It is indefinitely a big decision to buy property in the UAE. While finding your dream home or property in the UAE is not much of a hassle, getting a mortgage loan to purchase the property involves some challenges.
Whether you are an expat or a permanent resident of the country, there are some eligibility requirements that you need to fulfill to get approval for your mortgage. Overall, you may be faced with some challenges.
- New to the UAE
If you are an expat, then banks are very particular about certain things. For approving any kind of loan, whether it is a mortgage loan or even a personal loan, the financial institutions in the country take note of several factors.
For starters, the time you have been living in the country and the length of employment, all will be noted. If you have just landed here, your application won't even be processed. The minimum length of time you need to spend in the country before applying for a mortgage loan is between 6 months and 1 year.
Most importantly, banks check the length of your service at your current employment, which also needs to be at least 6 months.
- Employment Sector
If you are a UAE national or an expat, if you have ever applied for a loan in the country, you will be well aware of one of the most important requirements – your employer company has to be listed with the financial institution in order to mitigate the risks of lending.
Although the majority of multinational companies and all the government sectors are listed with the banks, some companies are not. So, even if you meet all the eligibility criteria on the loan and have a good credit history, your mortgage loan will not be approved if the employer is not approved by the bank.
On the other hand, if you are self-employed, your length of business is considered, which is required to be at least 2-3 years. Please note that if you are applying for a mortgage with a bank that you have a savings/salary account with, your chances of getting the approval is increased.
- Monthly Income/Salary
You will have to meet the minimum monthly income requirement to get approved for the mortgage. Whether you are an expat or a UAE resident, the minimum monthly income requirement of AED 15k is a must for salaried employees and AED 25k for self-employed. However, different banks have different criteria.
And most banks approve adding a co-applicant. That is, you can add your spouse as a co-applicant for the mortgage. This helps in meeting the eligibility requirements with ease and increases your chances of getting a mortgage loan.
The documents required for mortgage loans are almost the same for expats and nationals, except for some identity proofs. If you are an expat, you are supposed to provide your UAE resident visa and passport for verification, including other documents like bank statements for the last 6 months, trade license (for self-employed), salary certificate, Emirates ID, and other documents as requested by the bank. Loan approval is not going to be an issue as long as you have all the documents.
- Credit History
Last but not least, your chances of getting a mortgage loan in the UAE significantly rely on your credit score. In general, a credit score can make or break your loan application. At the time of applying for a mortgage loan, the bank will gather your credit score from your financial history, which includes details like outgoing and incoming cash flow and any history of loans.
Poor or non-existent credit score results in your mortgage loan application getting rejected. So, it is advised to start building your credit history by getting a credit card and paying the bills on time.
What are the steps in the mortgage approval process?
As said, the lending process varies from borrower to borrower. Now you know that there are several factors that go into the play for mortgage approval, your experience might be a little different from what other applicants experience. Nevertheless, the following are the steps that usually takes place before your mortgage loan is approved by a bank in the UAE:
- Mortgage Pre-Approval
Mortgage pre-approval is when the financial institution reviews your finances, such as your income, debts, assets, to determine whether you are a good candidate for a mortgage loan. Based on their analysis, they will also tell you much of a loan they are willing to lend you with a pre-approval letter. At this stage, the bank will also check your credit score.
- House Viewing and Purchase Agreement
Once your mortgage loan is pre-approved by the bank for a certain amount, you have a price range under which you can shop confidently. The bank will not be involved with the type of property you purchase.
- Mortgage Loan Application
In this step, you need to fill an application form that asks for information about the type of loan being used, the type of property being purchased, and details of the borrower.
- Mortgage Processing
Once you have completed the loan application and have a purchase agreement in place, you will move into the processing stage. This is an important step where the bank collects a variety of documents relating to you and the property you are purchasing.
The bank will review the documents to ensure that the paperwork is complete for the underwriting process. Once again, your credit report will be checked, and a home appraisal will be ordered to determine the value of the property.
- Mortgage Underwriting
An underwriter is a key entity in the mortgage loan approval process. He/she has the power to reject a loan application if it does not meet certain pre-established criteria.
The role of an underwriter is to double-check the application and documents to make sure that both you and the property match the eligibility criteria for the specific loan. He/she will also evaluate the risk associated with the loan.
- Mortgage Loan Approval Closing
When everything's in place, and the mortgage underwriter is happy with your application, he/she will label it œclear to close. It signifies that you have met all the requirements, and now the mortgage will be transferred, and the approval process will be closed. This is the final step of the mortgage loan approval process.
Applying for a mortgage in the UAE means that you have to have fees to pay. This includes administrative fees and legal fees. The amount you will have to pay will depend on your circumstances. Nevertheless, when you add all the fees altogether, it can turn out to be a costly transaction.
In the United Arab Emirates, when you are applying for a mortgage, you can expect to pay a significantly large deposit and fees, including the following:
- Loan protection insurance or mortgage insurance, which is compulsory. However, how much you have to pay will vary depending on the value of the mortgage and your property, including any other personal circumstances.
- Bank charges, such as insurance registration fees, property valuation fees, and mortgage processing fees.
- Mortgage registration fee, which is 0.25% of the total value of the mortgage.
Depending on your application and situation, you may find other costs and charges associated with your mortgage, both in terms of the cost of arranging the loan and the taxes applied.
Nevertheless, it is the deposit you have to pay to secure the mortgage that will be the major initial outlay. In the case of buying an off-plan property in the UAE, this deposit amount could be up to 50% of the total cost of the property.
On the other hand, if you are a foreign national and your main account is outside of the UAE, you might have to send money to yourself from abroad to pay the incidental costs and fees. When making an international money transfer, you will be charged a processing fee, which will be a certain percentage of the amount you are sending to your UAE account.
Banks in your home country may not offer good deals and may charge high processing fees and interest. Even if they promise to offer fee-free money transfers, the exchange rate is going to be so extensive.
Whatever your situation, you will incur costs, and that too in huge amounts. So, it is always advisable to keep an eye on the additional charges that you will be asked to pay. The best thing to do is shop around to find the best deals.
Tip for First-Time Mortgage Buyers in the UAE
Applying for a mortgage in the UAE is one of the most important financial transactions you will make in your life. Whether it is to purchase a family home or invest in a property for business purposes, you could use some tips that will help you in making informed decisions.
- Understand the market and get accustomed to the workings of the United Arab Emirates real estate market and loan market. The financial and real estate market in the country is quite different from other countries. Therefore, you need to ensure that you have a real estate agent by your side throughout the process to guide you in making a considered decision.
- Understand your mortgage and enquire about how it works in your case. For off-plan payment plans, the developer offers plans where either a portion of the purchase value is paid pre-handover, and the rest after the completion or 100% of the purchase value of the property is paid pre-handover.
- Always compare rates by shopping around. There are hundreds of banks in the UAE offering mortgage facilities. So, look for interesting offers and choose a bank that suits your financial standards.
- Some banks in the UAE will give you a preferential mortgage rate if you undertake a salary transfer.
- Understand the mortgage application and don't sign anything before you have thoroughly read it and understood it properly.
- Keep the liabilities to a minimum to make sure that you can afford a mortgage.
This is everything you need to know about getting approved for your first mortgage in the United Arab Emirates. As a first-timer, it can be a little overwhelming for you to take a mortgage. But it will help you in the long run if you make regular repayments. Overall, you should consult with a professional who can help you understand how things work here.