Hunting for a residential property to buy in Dubai? Before you do, it is advisable to get a comprehensive understanding of the loan application process laid out by the banks if you are planning to fund your purchase through a mortgage. Good homework before you embark on a huge commitment will help you a lot in the long run in terms of saving time, energy and other unnecessary costs which you may need to bear if you miss any step in the process.
Applying for a mortgage in the UAE involves multiple steps from pre-approvals to up-front costs and are dependent on the duration of the mortgage, the loan amount depending on your monthly salary, and the options of fixed and variable interest rates. A better understanding of the process, different bank offerings and Central Bank guidelines before you start to look for a residential property, will make things quick and efficient once you finalise a property.
We at Connector have gathered expert comments to help you understand the process step by step.
Minimum deposit needed to purchase a property in the UAE
Before you apply for a mortgage, you should have a cheque of 25% of the property value ready. The seller receives two cheques, 25% from the buyer and 75% from the bank when parties meet to sign the property registration document at Dubai Land Department. Girish Advani, Head of Assets, Retail Banking, Noor Bank said, “For UAE nationals, minimum deposit required is 20% of property value and for expatriates’ minimum deposit required is 25% of property value”.
For Example, if you are buying a property for Dhs 1,800,000, as an expat, you need to have a cheque worth Dhs 450,000 ready.
Age limit for mortgage application
The applicant needs to bear in mind that the duration of finance depends on their age on its maturity date, which is 70 years of age at time of maturity for the self-employed and nationals, and 65 years for salaried expatriates.
Daniel Le Moeligou, Director, Sales and Marketing at mortgage consultancy Home Matters said, “Age should be 65 for salaried persons, 70 for self-employed. Most banks would require at least 1 year of term so application would be 64 or 69 respectively.”
Maximum and Minimum length of Mortgage
You can apply for a mortgage for a minimum of one year or a maximum of twenty five years, as long as the applicants age does not exceed the limit at the time of maturity.
Salary
The amount of the mortgage depends on your monthly fixed salary. It is considered that 50% of your salary will be used towards your basic necessities, and the mortgage repayment and other monthly payments therefore must fit within the other 50% of your fixed salary. This criteria makes sure that the applicant is financially sound to meet the monthly instalments.
Stuart Roe, Head of Mortgages, Allsopp & Allsopp said, “The maximum amount borrowed depends on your salary and monthly income. All borrowings must fit within 50% of your fixed salary per month.”
Daniel Le Moeligou of Home Matters added, “For salaried persons, banks will allow 50% of the monthly income to utilise with a mortgage and any other fixed liabilities. There is a second test of 7 x annual salary which cannot be breached. For self-employed this can be a bit more complicated dependant on what the company does and how it
is structured.”
Different Types of Mortgages
Repayment mortgages
The monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest, so that the amount borrowed decreases throughout the term and by the end of the term, the loan has been fully repaid.
Interest only mortgages
With an interest only mortgage, your monthly payment covers only the interest charges on your loan, not any of the original capital borrowed. This means your payments will be less than on a repayment mortgage, but at the end of the term, you will still owe the original amount you borrowed from the lender. Daniel Le Moeligou of Home Matters said, “There are repayment mortgages predominantly. There are some very limited options for interest only. Generally these are not attractive.”
Mortgage Bank Application Process
Stuart Roe of Allsopp & Allsopp shared with us the application process step by step which goes as follows:
- The applicant should have a brief conversation with an advisor to determine their affordability.
- Submit passport, visa and Emirates ID along with their proof of income documents.
- Review with a mortgage advisor
- Submit the loan application form fully filled after discussing the lender options.
- A 2 to 4 day wait at this stage is estimated for approval.
- Submit the property documents for the valuation to be instructed
- A valuation report will be expected after 2 to 3 days and then the final offer needs to be produced by the bank.
- Make sure all conditions are met and prepare for disbursal.
- If there is finance on the seller’s side then you’ll need to request the seller’s bank liability letter, if not then request a No Objection Certificate (NOC).
- After the NOC has been produced then you’ll need to schedule an appointment with the lenders representative and the relevant parties.
- If there is finance from the seller’s side, once the liability letter arrives the settlement will be requested from the buyer’s bank.
- At this stage all money should be lodged with the buyer’s bank.
- Settlement normally takes around 10 to 14 days to receive the clearance documents and then move to NOC as before.
Additional costs
In addition to 25% of the property value, the buyer needs to bear extra 7% cost on the time of purchase. Daniel Le Moeligou of Home Matters added said, “Generally this is around 7%. This is made up of 4% land department fees and 2% real estate brokerage fees. The additional 1% would be for bank arrangement fee (between 1% and 0.5% of the mortgage amount), valuation fees, mortgage registration fees, insurance fees, land registry fee.”