Mortgage Basics You Should Know But Are Afraid To Ask

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Investing in your dream home is a very big deal in your life. And the process involves meeting with developers and agents, browsing through the internet, talking with family and friends, visiting properties, and then making the final decision. All these things are exciting, but there is one thing that is often less exciting, financing your home. 

You need to choose the right type of mortgage in Dubai so that you can properly finance your dream home. If you are looking for mortgage options in Dubai and the ways to make the most out of it, then this guide is perfect for you. In this detailed article, we will be delving into details that cover the basics of a mortgage in Dubai. 

Mortgage Law In Dubai 

The Mortgage Law of Dubai implies property mortgage and property units as security for a debt, which is registered within the Dubai Land Department. It highlights that a valid lender should be a bank, financial institution, or company actively licensed and registered with the UAE 

Central Bank to offer property financing in the country. Additionally, the mortgagor needs to be the owner of the mortgaged property and have the right to dispose of the same. 

The law requires that only mortgages that are registered under the Land Departments on the real estate register or the interim register will be viewed as valid. The mortgage ranking is determined by the allocated serial number and time on the registration. In Dubai, only registered mortgages are considered lawful. 

Coming to the enforcement, the law mentions that any clause within the mortgage contract specifying that when the borrower is not able to pay the bet within a certain period, the lender can seize the title of that property or can sell the property without going through the enforcement steps stated under the law. 

The provision also mentions the execution process on mortgage property foreclosure, offering a streamlined procedure on default by any borrower. Following are the enforcement steps:

 

  • In case of default in payment by the mortgage borrower, the lender needs to provide him or her with 30 days of written notice via the Notary Public prior to going forward with the execution procedure.
  • Even within 30 days, if the borrower fails to pay the due sum, upon the request of the lender, the execution judge shall order an attachment against the concerned property. It will allow the property to be sold through a public auction adhering to the applicable procedure mentioned in the Land Department. 

 

Are You Eligible To Mortgage A Property In Dubai?

Irrespective of the type of property, to mortgage a property in Dubai, you must fulfill certain eligibility criteria. Following are the criteria you need to fulfill:

  • You must be between the age of 21 and 65
  • If you are salaried, you need to have a monthly income of at least AED 15K. 
  • If you are self-employed, your monthly income should be at least AED 25K. 

 

The minimum salary requirement for a mortgage can vary based on the bank’s policies. In fact, some banks allow UAE nationals to take a loan with a monthly income of AED 8K.

 

For self-employed individuals to get a mortgage, they must be running the business for a minimum of two years. It would be helpful if they already have an existing relationship with the bank. 

 

Moreover, some banks will only provide a mortgage to applicants who are working for certain predetermined companies. This implies that if you are working in a government company, financial institution, or multi-national company, your chances of getting a mortgage increase. 

 

However, if you are working for a less-established employer, you are likely to have problems getting a loan from some lenders even when you are creditworthy.

 

Expats can also avail of a mortgage in UAE, but there are certain criteria. You must have your existing job for at least six months or one year based on the lender’s rules. 

 

Additionally, it is imperative that you hold a clean credit history when applying for a mortgage because lenders will reject the applicants who have non-existent or poor credit files. So make sure you check your credit file and repair any issues before applying for a loan. 

 

And, if you have no history of credit, then you should consider investing in a credit card and paying the bill every month to establish some credit history.

 

Different Costs To Consider While Investing In A House In Dubai 

There was a time when high property prices made buying a home in Dubai a mere dream for many. But today, the development of affordable housing options and declining prices have allowed people to turn their dreams into reality. In fact, in some cases, the monthly mortgage repayments would come less than rents. Additionally, you will also enjoy the added advantage of capital growth on the asset. 

 

Having said that, you need to understand the overall costs associated with buying a home that goes beyond your loan repayment. There are various charges imposed by the government agencies like real estate developers or agents, Dubai Land Department, mortgage lenders, conveyancers, etc. 

Following are the costs that you should consider when planning to buy a house in UAE: 

  • Government Fees 

As we mentioned above, in UAE, all purchases are required to be registered with the DLD within 60 days of your transaction. And if you are unable to do the same, your purchase will be considered void. Theoretically, the DLD charges, which are 4%, must be divided in half between the seller and the buyer. However, practically, the buyer ends up paying the whole 4% to the DLD. Additionally, the buyer also has to pay for the Property Registration Fee. When you invest in a home through a mortgage, you have to pay an extra fee of 0.25% of the overall mortgage value to the DLD. This is done to register your home loan against the property. 

 

  • Dubai Land Department Fees – 4% of the overall purchase value. Additionally, AED 580 admin fee is provided for offices and apartments, AED 40 for off-plan, or AED 430 for land. 
  • Dubai Land Department Mortgage Registration Fees – 0.25% of the overall mortgage amount along with AED 290. 
  • Property Registration Fee – AED 2000 along with 5% VAT for properties valued under AED 500,000. And, AED 4,000 plus 5% VAT for property valued over AED 500,000.

 

 

  • Mortgage Fees 

Banks charge a 1% mortgage arrangement fee along with 5% VAT. Additionally, buyers also have to pay a property valuation fee, which could range between AED 2,500 and AED 3,500 plus 5% VAT. The fees are payable directly to the bank. Some enable buyers to add these upfront costs to the mortgage to alleviate the stress of the initial financial expense.

 

 It is also vital to note that when investing in a property where the seller has a registered mortgage, the buyer will first have to pay out the seller’s mortgage to acquire the NOC or No Objection Certificate to process the property transfer through the DLD. Moreover, NOC states that the seller has paid off all the fees, and the developer has no objection to the subject sale. 

 

  1. Service Fees 

After the transaction has settled and furthered the property owner has been transferred, there is an extra expense to consider; service fees. You have to pay for the annual maintenance charges on the property to the Dubai Land Department, which is based on the RERA Service Charge and Maintenance Index. 

 

It determines a certain charge per square foot that differs based on the community. You can source the updated fees from the DLD official website. The amount is contributed to the maintenance of common areas of the community or building, for instance, security, swimming pools, landscaping, elevators, etc. 

  • Initial Deposit

For primary as well as secondary transactions, buyers have to pay a certain deposit in order to secure the purchase. In the case of ready property purchases within the secondary market, buyers have to pay 10% of the overall purchase price to the seller through a cheque. 

 

This amount is collected by the authorized agent who possesses the deposit until the property is transferred successfully. Additionally, where there is an existing mortgage registered against the property, the buyer needs to pay out the mortgage to apply for a NOC to acquire the title deed for the concerned property. 

  • Insurance Fees 

While home insurance is not mandatory, it is highly recommended. It provides you with protection against loss or damage because of accidents, theft, natural disasters, or fires. Life insurance is mandatory when taking a mortgage in the UAE. 

 

Premium payments of life insurance are continuous shot of mortgage homeownership that must be factored into the budget. Generally, banks charge it monthly, separate from the mortgage. They charge around 0.4% to 0.8% annually on decreasing mortgage balance.

 

However, some banks require the insurance policy to be paid in full for a year. Banks have their own life insurance policy underwritten by leading life insurance companies. But if you are looking for a cheaper option, you should consider getting an external life insurance policy. 

 

  • Home and Contents Insurance – Around AED 1,000
  • Life Insurance – Between 0.4% and 0.8% annually on decreasing loan balance

 

What Documents Are Needed To Acquire Home Loan in Dubai?

When you are applying for a loan in Dubai, there is certain paperwork that you need to submit to process the application. The documentation requirement differs from one bank to another. But generally, banks require you to submit the following documents:

 

  1. A copy of Emirates ID
  2. A copy of visa and passport
  3. A salary certificate to ensure employment 
  4. Banks statements and pay slips for the last six months 
  5. Proof of residences like DEWA bill or tenancy contract
  6. The latest credit card statement 

 

What Is The Process Involved In Getting A Mortgage?

Following are the steps you have to go through to get finance in UAE:

  • Finding The Right Lender 

Home loans in Dubai are sourced via banks that are registered with the Dubai Land Department. You can either hire a broker to work on your behalf or directly approach the bank. When you hire a broker, you can leverage their knowledge and insight into the local market and extend available home loan options that would work best for you. It allows you to direct your efforts on finding the perfect home rather than juggling with the paperwork and other formalities. 

  • Selecting The Type Of The Mortgage 

There are different types of mortgages available in Dubai. They would comprehensively fall under the categories of fixed-rate and variable-rate loans. There are different factors that you must consider when deciding what type of mortgage is ideal for your circumstances. 

 

Some of the key factors are your lifestyle, the amount of loan you need, the property you want to purchase, the cash deposit you can pay. Generally, banks have dedicated online mortgage calculators that enable you to insert variables and get approximate monthly installments. 

  • Obtain Pre-Approval Letter 

This is the most important step of the process. A mortgage pre-approval letter is defined as an official document which is issued by the bank. It acts as evidence that you are eligible for housing finance. It highlights the maximum amount the bank will give you like a loan and offers better certainty of availing of a home loan. Typically, it will take three to five business days to get your pre-approval letter. 

  • Finding Your Property

Once you have a pre-approval letter and a budget, you can look for your home. A pre-approval letter is valid for 60 to 90 days based on the lender. Therefore, you have a sufficient amount of time to search for your dream property. You can also find your property first and then apply for a loan. But sometimes, you are not able to secure the entire amount of property value that you need to purchase. 

  • Finalizing Your Purchase

Once you have finalized the property, you can finalize the loan agreement with the bank. The bank is likely to assign a property evaluator to assess the value of the property and help you to make a good offer on the same. After you and the seller have agreed on a price, you can pay the deposit and determine a date on which you can complete the purchase transaction. On that date, the bank will release the amount to the seller. 

 

Taking a mortgage in Dubai does not have to be complicated. Above are some basic information that is very important in taking a home loan in Dubai. 

 

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