Getting a Mortgage in Dubai: A Buyer's Guide

Are you an expat in Dubai who is thinking about purchasing a home? Congratulations! You're making the first move toward owning a property in one of the most vibrant cities on planet Earth.

Owning real estate in Dubai has several advantages, including the chance to establish roots in a region with a high standard of living and steady returns on investment.

Investigating the Dubai real estate market can be a fascinating prospect for expats. However, because of the unfamiliarity with the procedure and the regulations, obtaining a mortgage could seem difficult.

This guide aims to simplify the process of getting a mortgage in Dubai for expats. Whether you’re a first-time buyer or looking to upgrade your existing property, this guide is for you. Let’s dive in!

Mortgage financing institutions in the UAE

Finding the ideal lender is an important step in the mortgage application process in Dubai. Numerous institutions in the UAE take mortgage applications, so it's critical to pick one that is trustworthy and fulfills your requirements. Here are some important institutions:

Emirates NBD: One of the biggest banks in the UAE, this one provides a variety of mortgage options to meet various demands.

Mashreq Bank: Another well-known bank in the UAE that provides a variety of mortgage solutions is Mashreq.

HSBC: The world's largest bank, HSBC, has operations in the UAE and offers mortgage alternatives to locals and foreigners alike.

Abu Dhabi Commercial Bank:?ADCB is a significant player in the UAE banking industry and provides both locals and expatriates with a range of mortgage choices.

Dubai Islamic Bank: This bank is a popular alternative for people seeking an Islamic mortgage because it provides Sharia-compliant mortgage options.

To select the lender that best meets your needs, it's crucial to research each one and compare their mortgage packages, interest rates, and other terms and conditions. To make an informed choice, you can also seek advice from a trustworthy mortgage broker or financial counselor.

You can start the mortgage application process after choosing a lender. Before that, it's important to decide whether you want to work directly with a bank or a third-party mortgage company. In the next section, let's examine the advantages and disadvantages of each strategy.

Mortgage Provider: Banks vs. Independent Firms

There are two major ways to obtain a mortgage in Dubai: through a bank directly or by working with an independent mortgage company. The advantages and disadvantages of each strategy should be thoroughly considered before choosing one.

Direct mortgage through a Bank:

Pros:?

If you already have a banking relationship with a particular bank, it may be easier and quicker to obtain a mortgage through them. The bank may also be willing to offer better interest rates or terms to its existing customers.

Banks are regulated by the Central Bank of the UAE and, as such, offer a higher level of security and transparency in their mortgage transactions.

Banks usually offer a range of mortgage products with varying terms and rates, allowing borrowers to choose the option that best suits their needs.

Cons:

Banks only provide their mortgage products, so if you want a wider range of mortgage options or interest rates, you might want to think about working with an independent mortgage company.

Banks may charge higher application fees, processing fees, or early repayment fees than independent mortgage companies.

Banks usually have stricter requirements for eligibility and supporting documents, which can make the mortgage application process more challenging for some customers.

Independent mortgage firms:

Pros:

Independent mortgage firms collaborate with several lenders and can provide a greater selection of mortgage solutions with different terms and interest rates. As a result, customers may be able to discover a mortgage plan that best meets their requirements and financial situation.

Working with an independent mortgage firm can provide a more personalized experience, as they often have dedicated mortgage advisors who can guide borrowers through the process and provide tailored advice.

Independent mortgage companies could offer cheaper application, processing, or early repayment fees compared to banks.

Cons:

Independent mortgage companies are not governed by the Central Bank of the UAE, which raises questions regarding security and transparency.

Some independent mortgage companies might only collaborate with specific lenders or have restricted access to bank-offered mortgage options.

Since independent mortgage companies frequently engage with riskier customers or provide more flexible conditions, they may charge higher interest rates than banks.

The choice of whether to use a bank or an independent mortgage company will ultimately depend on your circumstances and preferences. It's crucial to carefully consider the advantages and disadvantages of each strategy before choosing one.

Getting ready to submit a Mortgage Application

One of the most important steps in obtaining finance for your dream home in Dubai is getting ready for a mortgage. You should do a few things to ensure you are prepared to take on this significant financial commitment before you start applying for a mortgage. Here are some essential steps to do before submitting a mortgage application:

1. Check your credit score: When evaluating your mortgage application, lenders will take into consideration your credit score. You may be eligible for a mortgage with favorable terms and interest rates if you have a high credit score. It is important to verify your credit score and make sure it is in good condition before applying for a mortgage. Make sure to settle any outstanding bills before applying for a mortgage.

2. Calculate your affordability: Before submitting a mortgage application, it is important to determine how much you can comfortably borrow. Determine the monthly mortgage payment that you can afford to make by adding up your income, expenses, and debts. Remember that in addition to your monthly mortgage payment, you will also have to make a down payment, pay closing costs, and cover other expenses.

3. Get pre-approved: Pre-approval for a mortgage can give you an advantage when looking to buy a home. A pre-approval indicates that a lender has reviewed your finances and decided you are qualified for a mortgage up to a specific amount. You may confidently look for homes within your price range with pre-approval, and when you locate the ideal property, you can move quickly to submit an offer.

4. Gather your documents: You will need to submit supporting documents with your mortgage application. These records often contain your bank statements, tax returns, bank statements, and other financial information. To ensure a quick and easy application procedure, gather all the required paperwork before applying for a mortgage.

5. Save for a down payment: In Dubai, expat residents and foreigners are required to make a down payment of at least 20% on their first home for properties under AED 5 million and 35% for properties over AED 5 million. To make sure you can afford the up-front expenditures of purchasing a home, you must put money aside for a down payment before applying for a mortgage.

Why you should get pre-approved

Getting pre-approved for a mortgage is an important step in the home-buying process. A pre-approval is a statement from a lender confirming that, based on your credit rating and financial position, you are eligible for a mortgage loan in the amount you choose.

The benefits of getting pre-approved include:

Pre-approval enables you to focus your search on homes that fall within your price range by giving you a clear indication of how much you can afford to spend on a property.

Once you've discovered the ideal property, you may finalize your loan more quickly because you've already gone through the pre-approval procedure.

As it demonstrates that you are a serious buyer and have the funds to buy the home, sellers may be more likely to accept an offer from a buyer who has already been pre-approved for a mortgage.

Exploring your mortgage options

In terms of mortgages, Dubai offers a variety of options. It is important to understand the differences between each type so that you can choose the one that is best suited for your needs. The following are some of the most common types of mortgages offered in Dubai:

1. Fixed-rate mortgages:?With a fixed-rate mortgage, your interest rate remains the same throughout the entire term of the loan. This means that your monthly payments will remain constant, providing you with a stable and predictable repayment schedule. Fixed-rate mortgages are great for those who want to know exactly what they will be paying each month, and who don’t want to be impacted by changes in interest rates.

2. Variable-rate mortgages:?With a variable-rate mortgage, your interest rate can change over the course of the loan term, depending on the prevailing market conditions. This means that your monthly payments may fluctuate, which can make it more difficult to budget for your mortgage payments. However, if interest rates drop, your monthly payments may decrease as well.

3. Islamic mortgages:?Islamic mortgages are designed to be compliant with Sharia law, which prohibits the payment or receipt of interest. Instead, Islamic mortgages are structured as co-ownership arrangements, with the bank and the borrower sharing ownership of the property. The bank then charges the borrower rent for the use of their portion of the property, rather than interest.

4. Off-plan mortgages:?Off-plan mortgages are designed for those who are purchasing a property that has not yet been completed. These mortgages usually require a higher down payment, and the interest rates may be higher as well. However, they can be a great option for those who are looking to invest in a property before it is completed, as the property value may increase significantly by the time it is finished.

5. Buy-to-let mortgages:?Buy-to-let mortgages are designed for those who are purchasing a property intending to rent it out. These mortgages may have higher interest rates, as the lender will consider the potential rental income when determining the amount of the loan.

Understanding the mortgage fees and other costs

There are some expenses that you should be aware of while applying for a mortgage in Dubai. Depending on the lender and mortgage type you select, these costs may be paid upfront or as part of your monthly mortgage payments. These are some of the costs you might anticipate:

Processing fee:?This fee is charged by the lender for processing your mortgage application. It typically ranges from 1% to 2% of the loan amount.

Valuation fee:?This fee is charged by the lender for valuing the property you are purchasing. It is usually a flat fee and can range from AED 2,500 to AED 5,000.

Mortgage registration fee:?This fee is charged by the Dubai Land Department for registering the mortgage. It is typically 0.25% of the loan amount.

Early settlement fee:?This fee is charged by the lender if you decide to pay off your mortgage early. It is usually a percentage of the outstanding loan amount.

Late payment fee:?This fee is charged by the lender if you miss a mortgage payment. It is usually a percentage of the missed payment amount.

It's crucial to remember that these charges can accumulate and substantially raise the total cost of your mortgage. When determining your affordability, be sure to ask your lender about all the associated fees and take them into account in your budget.

Conclusion

For foreigners who desire to establish roots in the UAE, obtaining a mortgage in Dubai may be a wise investment. There are numerous important factors to take into account when taking this action, from selecting the finest lender to determining the appropriate mortgage kind. To make the procedure go more smoothly, organizing your money, comprehending the costs involved, and obtaining pre-approval are important.