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Accusing a property is one of the biggest decisions that you’d be likely to make in your entire lifetime. If you are considering investing in properties in Dubai, for instance, this article will help first-time investors understand the steps to be followed.

Jumping into Dubai’s real estate market as a first-time buyer is super exciting! But if you’re thinking about going the mortgage route, you’ll need to wrap your head around some details that might be a bit different from what you’re used to in other cities.

Getting a mortgage in Dubai is becoming increasingly popular. With competitive lending rates and government-backed incentives for investors, it’s no wonder more people are considering it.

According to a recent survey by Mortgage Finder, mortgage buyers made up 43% of all ready sales transactions in the second quarter of 2024. That’s an increase from 35% in the same period last year, 2023.

What is a Mortgage?

A mortgage, or home loan, is basically an agreement where a lender gives money to someone so they can buy a property. The borrower is on board to pay back the loan within a set timeframe, including interest. So, home loans are secured, which means the property you buy acts as collateral. If you don’t make your payments, then you can lose the property, and the lender is free to repossess it in an effort to recover your debts.

What Does LTV Mean?

Along the way, you might come across the term Loan-to-Value (LTV). It’s a financial concept that lenders use to show how much of a loan is compared to the value of the asset you’re buying. People often use it in mortgage lending to figure out how risky it is to lend a specific amount of money for a property.

You find LTV by simply dividing your loan amount by the property’s actual value as assessed. To illustrate this process, assume you wish to acquire a home worth AED 1,000,000 with AED 800,000 financing. In that case, the LTV ratio would be 80%.

Types of Loan Options for First-Timers

So, if you’re a first-time buyer looking at a mortgage in Dubai real estate, you’ve got a few choices to consider. Just keep in mind that there are some differences in eligibility, terms, and conditions that you should be aware of.

Conventional Home Loans

Conventional home loans are actually the most popular type of mortgage in Dubai. So, these loans usually come with either fixed or variable interest rates, and you’ll need to make a down payment, which is typically about 20% of the property’s value if you’re just dealing with one mortgage. If you’re looking at a second mortgage, even if you’re a first-time buyer, you’ll need to put down 40% for the down payment.

If the loan exceeds AED 5,000,000, then you’ll need to make a 30% down payment. Most banks will also cover the Dubai Land Department (DLD) and broker fees, which is an extra 6%. It is usually based on the loan amount, and they typically finance about 60-80% of those fees, depending on the situation.

Islamic Home Loans (Murabaha and Iljara)

Islamic home loans, such as Murabaha and Ijara, are structured according to Sharia law, which doesn’t allow interest charges. These loans are more like profit-sharing or lease-to-own deals.

  • In a Murabaha, the bank purchases the property and then sells it to the buyer, adding a profit margin. The buyer pays back the bank in set amounts over time.
  • Ijara is when the bank purchases the property and then leases it to the buyer. The buyer pays rent until they actually own the property.

Fixed-rate Mortgage

With a fixed-rate mortgage, the interest rate remains constant throughout the loan’s life. These mortgages offer a sense of stability because the borrower can easily predict their monthly payments. However, if the market interest rate drops below the fixed rate, the borrower might pay more.

Variable-rate Mortgage

With a variable-rate mortgage in Dubai, the interest rate can change depending on the Emirates Interbank Offered Rate (LIBOR), which is the rate banks use to lend to each other in the UAE. A variable-rate mortgage can give you the chance for lower interest rates, but it also comes with the possibility of higher rates down the line.

Eligibility Criteria for Mortgage Approval

So, if you’re looking to get a mortgage in Dubai, here’s what you need to know about the eligibility criteria:

  • To apply for a mortgage in Dubai, you need to be between 21 and 65 years old.
  • It’s important to have a steady source of income that meets the minimum requirement. The minimum income requirement can differ depending on the bank, but generally, it’s around AED 15,000 for salaried people and AED 25,000 for self-employed people.
  • When you apply for a loan, banks will take a look at your credit score to find out if you’ve been good at paying back your debts on time.

Finally!

Getting a mortgage in Dubai can be a big step when you lack adequate guidance and information. To get the most out of it, research and compare as many mortgage options, interest rates, and terms as possible with several lenders. It is indeed an important financial step, as you need to plan your budget accordingly to ensure that the monthly payments do not burn a hole in your pocket.

Omar Al-Farsi

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