Are you looking to buy properties for sale in Dubai? Well, you are not alone; given the recent growth in Dubai real estate sector compared to the rest of the world, it is a hotspot for billionaires and regular people alike to invest money.
Dubai real estate sector has also seen a boom, and although there is speculation of it slowing down in 2023; however, it will continue to grow at a much quicker pace than other places. The selling out of development projects at launch ceremonies and the success of off-plan properties speak volumes regarding the claim that Dubai off plan properties will witness robust growth in 2023 and the potential for a lucrative return on investment.
Let us mention that most of the property payment transactions in the emirate are cash transactions. Still, loan or mortgage options are available for those who need or want to opt for it, especially if you don’t have the full amount to make the purchase. Well, you are in luck, as we will discuss your options to secure a mortgage in Dubai. However, before we move on, let’s look at the importance of mortgages in Dubai.
Securing a mortgage – A smart move
Securing a mortgage is essential for investing in real estate as it provides an investor with the necessary funding to purchase a property. It can help investors leverage their purchasing power, allowing them to buy more property with less money. A mortgage also gives an investor a financial cushion when unexpected costs are associated with purchasing a property. Furthermore, a mortgage opens access to more financing opportunities, such as refinancing, which can be used to raise money for renovations or other investments. However, the most crucial question is how to choose the right mortgage lender in Dubai?
Major types of mortgages in Dubai
Mortgages are also referred to as home finance in Dubai, and the term is interchangeably used. When it comes to buying properties for sale in Dubai, one of the most important decisions you need to make is the type of financing you will use. There are several mortgage options available in Dubai, so it’s important to carefully consider each one before making a decision. Here are some mortgage options you can avail:
- Fixed-rate mortgage: This is the most common type of mortgage in Dubai and the simplest form of financing. This loan allows you to agree on a fixed interest rate and monthly payment amount. It’s ideal for those who can afford a larger down payment and prefer stability.
- Variable rate mortgage: This type of loan has an interest rate that fluctuates based on market conditions. It’s not as secure as a fixed-rate mortgage but offers more potential for savings if you plan to stay in the property for a long time.
- Re–mortgage: This is a good option for those who already own a home in Dubai and want to benefit from lower interest rates. By refinancing your existing loan, you can get a new loan with a lower rate.
- Offset mortgage: This type of mortgage allows you to reduce your monthly payments by using your savings account balance to offset the mortgage balance. This results in lower payments and more savings.
Dubai is the best place to live, work, invest and visit in 2023, due to which potential investors prefer investing in properties in Dubai. Mortgage loans are the most popular mode to buy properties, secured by the property and offered by banks and other lenders. However, the following are also quite popular:
- Home equity loans use the borrower’s equity in the property to finance the home and offer lower interest rates and longer repayment terms but carry a higher risk.
- Islamic home financing uses a profit rate based on the EIBOR, involves shared risk between the lender and borrower, and follows the principles of Islamic banking.
- Personal loans for housing are unsecured, rely on credit history and income, and can be used for a home purchase or renovation with competitive interest rates and flexible repayment terms.
Typical requirements for acquiring a mortgage in Dubai
Eligibility requirements
To qualify for a mortgage in Dubai, specific criteria must be met. These include being a
- UAE national or resident
- being between the ages of 21 and 65,
- having a monthly income of at least AED 15K if salaried or AED 25K if self-employed
However, it is important to note that each bank may have additional criteria, such as a minimum period of time served at a current job or working for certain employers. The minimum salary required may vary from bank to bank.
Documents required
When obtaining a mortgage in Dubai, certain documents are required. These usually include a copy of the following:
- Valid visa and passport,
- Emirates ID.
- Salary certificate for employment verification.
- Proof of residency (such as a tenancy contract or DEWA bill).
- The past six months of payslips and bank statements.
- The latest statements from credit cards.
While requirements may vary between banks, the aforementioned documents are typically the most commonly requested. However, checking if your bank has any additional document requirements based on its policies is advisable.
Mortgage requirements if you are a Non–Resident
Can a non-resident get a mortgage in Dubai? And the answer is yes! Though the requirements differ if you are a non-resident looking for a financing option to purchase property in Dubai. However, before that, here are some points you need to be aware of:
- To apply for a mortgage in Dubai as a non-resident, you must have insurance coverage as a requirement from all UAE banks. Any additional requirements beyond insurance coverage for non-resident mortgage applicants may vary by bank.
- Non-residents can only use a mortgage to purchase a residential property in UAE’s freehold zones. Banks may have their own lists of eligible properties. It’s advisable to check with various banks for available freehold zones.
- To obtain a residence permit in the UAE, purchase of a property costing over $270,000 (not on a mortgage) is required. Note that a residence visa does not guarantee work authorisation; a separate work visa is necessary. Employers in registered UAE companies may assist in obtaining a work visa. Having a property in the UAE does not permit work, and a monthly income of at least $2,700 or AED 10,000 must be shown.
To qualify for financing as a non-resident, you typically need to meet the following criteria:
- Insurance: The borrower must be insured, with a fee of approximately 0.3% of the loan amount and a processing fee of up to 1% of the total loan amount charged by the bank.
- Legal Age: The borrower must be at least 21 years old when signing the loan agreement.
- Age Limit: The maximum age limit for obtaining a mortgage varies by bank, but those over 55 may face difficulty obtaining one.
- Interest Rates: Foreigners can expect to receive a mortgage with interest rates ranging from 6.5% to 9.5% per annum.
- Loan Term: The mortgage term cannot be less than five years or more than 25 years.
- Loan Amount: The loan cannot exceed 90% of the property’s value.
Document required for Non-Residents
To apply for a mortgage in the UAE, a foreign applicant must provide the following documents:
- A mortgage application form
- A copy of the applicant’s passport
- A copy of the UAE residence permit
- Latest 6-month bank statement
- Employer testimonial/salary certificate (if employed)
- Company registration documents, charter, certificates, auditor’s opinion on financial position (if self-employed)
The bank usually takes three months to decide, including verifying the applicant’s creditworthiness. If approved, a contract is signed between the borrower and the bank. Then, a 10% initial payment is made for the purchased property. The contract is then registered at the UAE Land Department. With the power of attorney, representation by third parties is allowed for both buyer and seller, regardless of the mortgage status.
Costs for mortgage application
When applying for a mortgage, the following costs must be considered:
- An initial payment of 10% of the property value
- A bank fee of 1% of the property value for issuing the loan
- An insurance fee of 0.3% of the loan amount for the borrower.
Typical mortgage acquisition process
We have mentioned the mortgage and financing options types and the required criteria and documents. That brings us to the actual process of getting the financing to purchase properties in Dubai; for both residents and non-residents, follow these steps:
Find a lender
- Identify a bank that offers mortgages in Dubai and is registered with the Dubai Land Department.
- You can search for a bank or hire a mortgage broker to find the best option.
Choose the right mortgage
- Consider fixed-rate or variable-rate mortgages.
- Take into account factors such as your lifestyle, desired property type, loan amount, and available cash deposit.
Obtain a pre-approval letter
- A pre-approval letter from the financing bank confirms your eligibility to borrow a specific loan amount for buying property in Dubai.
Finding Your New Home
- Before applying for a home mortgage, you may search for a residential property, but you may face the challenge of securing enough financing from the chosen bank for your desired home. Some people choose to find a property after obtaining a pre-approval letter from the bank. It’s important to remember that the letter is valid for 60 to 90 days, which gives you enough time to search for a new property.
Finalising Property Purchase
- The bank financing your purchase may assign a property evaluator to assess the value of your property to help you make a reasonable offer. After agreeing on the price, you will make a deposit and set a completion date for the purchase transaction. The bank will release your loan amount to the seller on the final day.
Conclusion
A mortgage can be a great option when buying a residential property in Dubai. To ensure a smooth and efficient process, ensure you meet eligibility criteria, provide the correct documents, and choose the right bank, mortgage, and property that fit your needs. Also, ensure you have the right amount to make the down-payment and cover the additional mortgage processing costs. Keep in mind that getting a loan involves a long-term commitment, so consider all aspects of your life and budget before making a decision.
