The term mortgage often sounds emotionally stirring, as on one hand it offers an opportunity to get financial relief and on the other hand, it can sometimes be hard to clear off the debt and lose your property in the process. However, if managed properly, mortgages in Dubai can be a good source of getting financially independent and generating a steady source of income.
There is a plethora of options available for residents and expatriates who want to purchase or invest in real estate in the UAE. This article will explain everything you need to know about mortgage in Dubai and buying a property without exhausting all your finances.
Before you head out into the market to search for the home of your dreams, it’s inevitably important to get an in-depth understanding of how the process of getting a mortgage in Dubai works.
A Quick Guide to getting a Mortgage in Dubai
We have put together some valuable information to help you figure out the complex process of mortgages in the UAE. The article shall be shedding light on the following key topics:
- Should you invest in Property in UAE?
- Who is Eligible to get a Mortgage in the UAE?
- Types of Mortgages in UAE
- Rates of Mortgage in UAE
- How much of a loan you can request for a Mortgage in UAE?
- Application Process for Mortgage in UAE
- Getting an Agreement in Principle
- Documents Required to Apply for a Mortgage in UAE
- Step-by-Step Guide to Getting Mortgage in UAE
- Suitable Mortgage lenders for Expats in UAE
- Mortgage Costs
- Property Insurance
- Mortgage Repayments
- Mortgage Refinancing
The Process of getting a Mortgage in Dubai
UAE has turned out to be a preferred work and holiday destination for people from across the globe. Hundreds and thousands of visitors come to this land of opportunities every day to secure a job and make a living. As a lot of international investors and organizations invest their resources in the country, the real estate market is thriving at a remarkable rate.
Laws and regulations for getting a mortgage in Dubai have been eased and expats can easily request home loans without getting into complex terms and processes. Several international and local mortgage lenders offer simple solutions for home loans and this comes as a big relief for expatriates who wish to purchase their own property in the country.
Foreign nationals can benefit from buy-to-let mortgages or residential ones depending on their personal choices and preferences but the criteria for both options may vary significantly.
- Should you invest in Real Estate Property in Dubai?
Millions of foreign nationals call UAE their home. A huge portion of the expat population chooses to live in rented homes either because of the increased cost of buying a property to because of employment uncertainty.
Foreign nationals and buyers can purchase houses and apartments in select areas and locations with freehold developments. A lot of expatriates buy apartments off-plan by signing a contract with a developer directly. This process usually requires the buyer to pay a 10% upfront cost and then make the rest of the payments on a specified date while the property undergoes construction.
Timelines often are not reliable and delays can happen. Therefore, a suitable choice in such situations is to seek expert legal advice before getting into a contract.
The total cost of buying a home in Dubai can be overwhelming. In the capital, you have to pay 2% of the buying cost to the real estate agent and 2% transfer fees to the municipality. When purchasing a new home, you would also have to pay AED 5000 fees to the property developer.
You need to pay 2% fees to the Dubai Land Department and 2% of the total buying price to the real estate agent.
These additional costs can put an additional burden on your financial expenses but purchasing a property will be a beneficial investment in the longer run.
To find out more about real estate investment in UAE and ways to earn passive income through your property in UAE, click here.
- Who is Eligible to get a Mortgage in Dubai?
All foreign nationals can get mortgages in Dubai but certain criteria have to be met to get the process done. To successfully secure a mortgage deal, you need to work full-time for at least 6 months or a year depending on the geographical location of the property you are interested to buy.
Business personnel and self-employed buyers should be in the business for a minimum of two years to be eligible for borrowing a mortgage loan. Also, having been registered with a bank will be an added benefit as it will familiarize you with your current business and financial circumstances.
A major downside of the whole system is that some banks and financial institutions only accept mortgage applications from individuals who are employed at specific organizations and companies. That means if you are a government employee or work in a bank, or a multi-national organization, you won’t be facing many difficulties in securing a mortgage loan.
However, if you work in a small-scale company or a less renowned organization, you may face hurdles in your way of getting a mortgage in Dubai.
Another important fact is to have a good credit history. People who have a history of clean credit are more likely to get a mortgage loan as compared to people who have a poor credit scores or pending debts.
So, if you are still in the process of clearing off a previous debt, you should hold yourself back from applying for a mortgage in Dubai. Fix your credit score and make sure are free of any pending loans or installments to avoid delays in securing a mortgage loan.
If you are someone who never had credit, it would be better to get a credit card, start spending, and clear off the payments on time every month to create a good credit history.
- Types of Mortgages Available in Dubai
When it comes to the types of mortgage in Dubai, ex-pats and foreign buyers can either get a fixed rate or variable rate loan.
- Fixed Rate Mortgage
Fixed-term mortgages are usually spanned over five years but some can be as short as a year. When the term ends, the contract then moves on to the variable rate set by the bank.
Fixed-rate mortgages let the buyer have some sort of certainty regarding the number of repayments for a fixed period but you may consider a variable-rate mortgage if the interest rate is expected to fall.
All terms and regulations are usually set at a period of twenty-five years and the mortgage loan has to be cleared off before 70 years of age.
- Mortgage Costs in Dubai
The rates for a mortgage in Dubai vary depending on the lending institution, type of property, and the financial standing of the borrower.
According to regulations introduced in October 2019, the rates of mortgage start at 2.75% on a 1 year fixed rate, 3.89% for 3 years, and 3.99% for five years. These rates are most likely the lowest in the current market so you might have to pay a lot more.
Since the last few years, the mortgage market in the United Arab Emirates has somewhat lost its pace as a lot of buyers now prefer buying homes directly from the developer using different payment plans instead of mortgages.
So, the rates for mortgages fluctuate in UAE depending on the overall economic situation of the country and the price of oil in the international market.
- How many loans you can get for a Mortgage in Dubai?
Foreign nationals requesting a home loan will require a deposit of a minimum of 25% if they intend to buy a property worth AED 5 million. If you go up the scale and buy even pricier residential villas or apartments, you will be required a deposit at least 35% of the total cost.
If you are planning on buying a property to rent it out, you will require a buy-to-let mortgage. In such a case, you will have to make a big down payment of almost 40-50% of the total cost of the property.
The amount of residential loan you can take is capped in several ways. The total loan you will get cannot exceed the number of your total earnings in the coming 7 years.
In the emirate of Dubai, the mortgage payments are generally capped at 50% of the total monthly income of the applicant. This amount is pretty generous as other countries cap the amount somewhere between 30-35%.
When you apply for a mortgage, you will be surprised to find out that banks in UAE require foreign nationals to have a higher monthly salary than a local mortgage applicant. This is because some financial institutions and mortgage lenders think of expats as a riskier borrowers who might have to leave the country anytime if laid off.
- The Application Process for Mortgage in Dubau
To request a residential loan, you can either reach out to banks or ask for help from a mortgage broker. You may also find a lot of credible websites in Dubai and Abu Dhabi where you can explore and compare offers, rates, terms, and conditions from different mortgage lenders.
Mortgage lenders are seen as a valuable source for foreign borrowers. A broker may help you in navigating through the ups and downs of the local property market and will aid in finding the most suitable deal according to your budget and other preferences.
An application for a mortgage in UAE is usually processed within a few weeks.
- Getting an Agreement in Principle (AIP)
AIP or agreement in principle is usually the first step in getting a mortgage. It can be beneficial to get an AIP before you formally apply for a mortgage in UAE. AIP means that the bank will give the necessary approval for your residential loan ahead of you finding a suitable home. This allows you to look around for various options and get into a deal as you know the total budget you can invest.
- Documents Required to File Application for Mortgage in Dubai
When you decide to apply for a mortgage in UAE, the papers and documents that you will be required to submit may vary significantly depending on the lender or bank you are approaching for the loan.
Lenders generally ask for the following documents:
- Valid passport copy
- Proof of residence in UAE/ Tawtheeq
- Salary certificate/income certificate
- Bank statements
- Tax returns
- Emirates ID
- Visa copy
- Step-by-Step Guide to Mortgage in Dubai
When thinking of applying for a mortgage in Dubai, you will generally have to follow the steps mentioned below:
- Choose a lender. This can either be a bank or a mortgage broker
- Do the research and compare different lenders to find the most suitable mortgage for your budget and preferences
- Get an agreement in principle from your preferred bank and request for a letter to be later presented as evidence.
- Find a property/house of your choice keeping in mind your total budget and officially make an offer.
- After mutually agreeing upon a price quote, pay the deposit to finalize your purchase and set a completion date.
- On the completion date, the lender will provide you with all the funds you require to pay the property seller.
- Suitable Mortgage Lenders for Expats in Dubai
You may find over 30 mortgage lenders in Dubai but not all of them will offer loans to foreign nationals or non-citizens. Foreign lenders can only work in the UAE if they are recognized and approved by the central bank.
Lenders who are not officially recognized cannot possibly put a mortgage against a property. In simpler words, this means that if a borrower fails to make the payment, the bank will not be able to repossess the property.
Following are some of the most suitable mortgage lenders for expats in UAE that you may consider
Mashreq bank offers loans on easy terms to all foreign nationals residing in the UAE. The bank can provide you with residential loans if you are employed and earning a minimum of AED 15000 a month
HSBC is another expat-friendly mortgage lender that you may reach out to for getting a residential loan. To get a loan from HSBC you will need a salary of at least AED 15000 a month. HSBC offers mortgages on some select developments only. You can even deposit overpayments but an overpayment is subject to a minimum of amount AED 30,000.
- Emirates NBD
Owned and managed by the government of Dubai, Emirates NBD offers its customers mortgages worth up to AED 15 million. The bank provides mortgages of up to 75% loan to value and you can avail of the AIP (agreement in principle) too.
- Costs of Mortgage in Dubai
When getting a mortgage in Dubai, you will be required to deposit a fee of 0.25% of the total amount to register the loan. The mortgage lender may also ask you for a valuation fee and may request you to make payment for the mortgage protection insurance.
- Property Insurance in Dubai
Property insurance is compulsory in UAE when getting a mortgage however content insurance is your personal choice. Insurance policies for properties are pretty affordable and you get building insurance or content insurance separately or get a package where you get both.
The amount you will be required to pay depends on the total cost of your property and its contents. Generally, the annual premium can be somewhat 0.1% of the total value of the apartment and your belongings.
Here is an interesting article on Home Insurance in UAE that you may consider reading to find out suitable options.
- 1Mortgage Repayments
Repayment mortgages are the most common type of loan available in the UAE. These types of deals involve the applicant paying a fixed amount every month for the total agreed-upon duration of the mortgage. Payments are generally made by linking your bank account to the lender account for automatic and on-time payments.
Interest-only mortgages are not quite popular in the country. These types of mortgages involve paying a specific amount of interest every month and then paying off the total principal amount at the end of the mortgage duration. These loans are a bit risky and are commonly available for a term of five years only.
- Mortgage Refinancing
UAE’s mortgage market is pretty competitive with most banks competing with one another to provide discounts on fixed periods on residential loans. This is of great benefit for the borrowers who look around to switch the deal as most lenders offer attractive options to people who already have signed up for a mortgage.
If you want to switch a mortgage deal, reach out to your current bank. Some mortgage lenders may restructure your residential loan with a discounted rate for a fixed term. However, while some lenders will provide restructuring for free, some may charge you for switching the deal.
But according to the rules enforced since December 2015, the maximum fee that a lender may charge you for switching a mortgage deal is set at 1% of the total balance.