 Options for funding your purchase
The property boom in Dubai has attracted global recognition and every day literally hundreds of properties in Dubai are bought or sold. Therefore, finding the right UAE mortgage requires some research and planning since terms and conditions vary greatly among the lending institutions. The good news is that mortgages for Dubai properties are now available to both residents and international buyers.
Potential home buyers may look at a variety of factors to be considered when applying for a mortgage in the UAE including (but not limited to) the following:
Always evaluate the entire loan package
Looking only at the interest rate for a mortgage does not tell the whole story. The entire package should include costs, flexibility and exit fees as well.
Who will lend on freehold property?
Nowadays the UAE has a variety of local lenders and a limited number of international banks offering finance for property. Potential lenders will base their decisions to provide a mortgage or not on the following criteria: 1) in which country is the investor a resident b) where is the property located – is it considered A-type, means prime location like Dubai Marina which targets the luxury segment or B-type location like International City which caters mostly to the medium income home buyers (c) how will the loan be supported – is sufficient income available (d) personal circumstances (e.g. single or married with children, employed or self-employed, age, education, etc.) also affect the finance. While there may be quite a number of potential lenders that offer finance, there is usually only one lender which offers the "best and most suitable" product for the investor’s individual requirements.
What are the terms & conditions?
The various lenders have different criteria as to how much they can lend a borrower. Typical interest rate on average is 6.95%. Repayment terms: normally up to 15 years. Income criteria: based upon affordability considering principle monthly outgoings (taking into account all mortgage payments, personal loans, car loans) to be a maximum of 55% of net monthly income.
What kind of loan can the home buyer apply for?
Depending on the investor’s personal circumstances, he/she can either apply for a) resident or b) non-resident finance. People are able to use "resident-status" if they have a residency permit (must be stamped into the passport) for the UAE. But generally speaking, there are many more factors which affect qualification for resident finance. The choice of lenders who offer non-resident finance is, however, still limited.
What currency will the loan be established in?
If funds are borrowed from a local UAE lender, the loan will be in Dirhams (AED). The exchange rate between USD and Dirham (AED) is fixed at 3.68. Other currencies such as Euro or British Pound are subject to fluctuating exchange rates.
Are there additional costs or charges?
Loan application fees vary between lenders and loan products. Some lenders may even require insurance policies linked to the mortgage. Building insurance is also commonly requested. Each lender has its own fees and charges, which can vary quite dramatically between lenders. Therefore, a thorough market evaluation is necessary to avoid paying unnecessary fees and charges.
What is the difference between Islamic / Shariah-compliant loans and mortgages?
Although both Shariah loans and mortgages fulfill the same role which is providing money to a borrower, the important difference is that Shariah loans do not charge interest - they are based on Islamic profit-share principals. Shariah loans are similar to hire/purchase agreements meaning that the title of the asset stays with the lender of the money until the final loan payment is made – then the title is transferred to the buyer. On the other hand for a mortgage, the title stays always with the buyer, but a "registered interest" of the bank remains on that title until the last payment is made - and the registered interest is then removed.
Examples of finance options currently available in Dubai:
Amlak finances up to 90% of the property value
Amlak Finance announced a new home financing scheme for UAE nationals as well as foreign investors. The home buyer can take advantage of 90 per cent finance of the property value with a maximum of 25 years. The maximum loan per individual has been capped at AED 5 million. In addition, the maximum debt service coverage ratio (i.e. the monthly mortgage payment) is 55 per cent of the monthly salary. The buyer has to be in full-time employment in the UAE with the same employer for a minimum of three years. Although Amlak normally complements Emaar’s property portfolio, it has recently tied up with a wide range of developers.
Tamweel can arrange home finance up to 70%
Tamweel combines the legacy of two organizations - Dubai Islamic Bank, the first Islamic Bank in the world, and Istithmar, which is part of the corporate (government) group (including the Dubai Ports, Customs and Free Zone Corporation, Nakheel, Dubai Metals and Commodities Centre and Tejari). Tamweel is one of the fastest growing real estate developers with a dominant presence in trade and commerce in the region.
Dubai Islamic Bank
Dubai Islamic Bank operates on the principles of Islamic finance techniques and buys the property on behalf of the customer and is thus the legal owner of the property. The customer will then lease it from Dubai Islamic Bank for a period mutually agreed upon and on complete repayment of the loan, the transfer of the property to the name of the owner will be effected. Naturally the project that they finance is in the name of the bank till complete repayment of the loan, which completely eliminates the risk factor.
Source: DBS
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