Buying a property or a house is a biggest financial transaction a person makes in his or her lifetime. While some may have enough funds to buy the property or home, many do not. They prefer to take a loan to finance the purchase. Most people opt for mortgage loan.
Mortgage loan or mortgage is loan that is secured by a property or real estate. The lender promises the buyer to pay the funds within a certain time frame in exchange for the funds received to buy the property or home. The loan is secured with the property purchased with the fund. If the borrower fails to repay the loan, the lender can take possession of the secured property. Borrowers can be individuals mortgaging their homes or can be businesses mortgaging their commercial property.
Top factors to consider while taking a mortgage in the UAE
You need to take into consideration the following factors while taking a mortgage in the UAE:
- Size of your down payment:
When you are buying a house, you need to have sufficient amount to pay for the down payment. When you make a sizeable down payment, you improve the chances of a getting a loan approved easily.
- Credit report:
You need to look at your credit report before you apply for the mortgage. If you find any discrepancies, you need to get it fixed. If your score is low, you must try and get it higher and then apply for the mortgage.
- Credit outstanding:
You need to pay off as many outstanding credits you have to ensure that your application is not rejected.
- Credit cards:
Don’t apply for a new credit card when you know you are applying for a mortgage. The lender will hesitate to give you the mortgage and also it decreases your credit limit.
You must show a steady source of income. It helps if you have stayed at a job for a long time. Don’t change your job right before applying for the mortgage. The lenders will prefer those who have held a job for a long time as it shows stability and they can be sure that you will have steady source of income and you can make your payments on time.
- Rate of interest:
Rate of interest determines how much payment has to be made each month. When you know what the interest rate is, you can plan for your finances in a better way. You can lock in the rate if you suspect that the interest rates will increase in the future. The lenders offer fixed rate and variable rate mortgages in the UAE.
- Funds available:
You need to show enough funds apart from the amount you have for down payment. This way the lender will know that you have funds to rely on if you are running short of cash to make the monthly payments.
- Debt to income ratio:
If your monthly debt repayment is more than 50% of your income, the lenders will reject the mortgage application. You must ideally have a debt to income ratio of 10-20%. This ratio also indicates how much payment you can make each month towards the mortgage repayment.
Lenders charged arrangement fee, booking fee, etc. You must check if you can afford it. The lenders offering lower interest rates usually charge high fees.
Though most of you may ignore this aspect, you need flexibility to make overpayments. You may come across some extra funds and if you are unable to pay the mortgage, you may end up paying interest for a longer period. Having flexibility also ensures that you can reduce your interest dues by making overpayments.
Before you apply for a mortgage, you must visit the bank or talk to a bank executive to check if you are eligible for the loan or not. Do not apply if you don’t meet any of their criteria as they will run a credit check and it will harm your credit score and you may not even get an approval. Most banks in the UAE require you to have a salary transfer requirement. You must understand their criteria and only then go ahead with applying for the mortgage.
Every lender has different requirements. You must therefore compare all the features and the fees before you apply for the mortgage. You must also learn about the lending institution. You must also ask how many mortgage applications they get and out of them how many are approved and disapproved.
Following are the tips that you can use when you are applying for mortgage or if you have gotten a mortgage:
- When you are applying for a mortgage in the UAE, be honest about everything. Do not withhold any relevant information, there will be a risk of being charged as a fraud. Wanting a loan is not worth the charge.
- Approach different lenders and look for who has the best deal to offer you. Don’t take a mortgage if you are unable to make the payments.
- Make sure that you don’t have any other credit to take care of and you will be only paying towards the mortgage.
- Do not ever agree to payments you are not in a position to afford.
- After you have gotten the loan, ensure that you get a copy of all the documents and you get the disclosure document.
- Don’t take on credit insurance or any other product unless you want it. If you are required to have a credit insurance, shop around look for better rates and benefits. Choose the one the best suits your requirements.
- Before you sign the final documents, take your time and read through the documents carefully as there is a good chance that some statements might have been changed. Ensure that you clarify everything in the document that you do not understand.
- Make sure you make the monthly payments on time and without fail. If you have gotten a raise at work, use the extra money coming in towards paying the mortgage.
- The extra payment goes towards paying the principal amount and this in turn will reduce your interest payments for the months to come.
- Don’t take on more credit when you have to pay for the mortgage.