UAE is the epicentre of an elite lifestyle and world-class amenities. People from around the globe head towards UAE, especially Dubai, when they are to improve their living standards and get a taste of lavishness. When an expat reaches UAE and is looking for an abode, it is quite common for his first search on the internet to be about “home loans in Dubai”.

This article explains everything you need to know about home loans in Dubai, from prerequisites to the documents required, and briefly explains the procedure to apply for a loan.

So What is a Home Loan?

home loans in Dubai

A home loan, home finance, or home mortgage is to ask the bank or any official lender to lend you the amount you need to buy a property in Dubai. When an expat moves to Dubai, applying for a home loan is generally one of the first things they do.

When the bank, or the lender, approves the home loan to you, you have to pay it back in monthly instalments in addition to the interest rate you agreed to.

Types of Home Loans in Dubai

When applying for a home loan in Dubai, it is a must to know about different types of home loans or home mortgages. This is essential because your budget is essential to a home loan and each home loan has a different rate of interest.

The type of home loan you select decides whether you get a good deal or not. The types of loans are as follows:
  • Fixed Interest Rate: As the name implies, it is the type of loan where you agree on one specific interest rate percentage. This agreement is made before the loan period starts.
  • Variable Interest Rate: This type comes with an interest rate that is changeable and depends upon the market and its regulation. It is unpredictable and can go both in favour of loss for you.
  • Discounted Interest Rate: In this type, the lender gives you a significant discount on the interest rate during the first few months.
  • Capped Interest Rate: The interest rate is not fixed in this and is changeable according to market and regulation. However, here, before the loan period starts, you agree on the maximum interest percentage.
  • Offset Interest Rate: This type attracts the most. It is a new option offered by lenders that allows you to connect your loan, credit accounts, and savings together. This allows you to reflect more balance in your account which, as a result, helps in decreasing the interest rate.

Points to Ponder about Home Loan Types

  • A fixed Interest Rate is the most basic and the best option there is. This helps you to calculate your budget upfront without any risk of variance. For the new expats looking for a home loan in Dubai, this seems like the most feasible option.
  • Variable Interest Rate is only good if you are financially secure and your economy predictable. If the interest rate decreases, you will definitely enjoy it. However, make sure that you are also able to bear if the interest rate increases.
  • Discounted Interest Rate certainly looks good at the first look. You have to pay low interest for the first couple of months but once that discounted phase is over, the remaining amount can be huge. Make sure that you can carry the burden later if you can enjoy the perks first.
  • Capped Interest Rate is a good option for those who are interested in Variable Interest rates. You will be able to enjoy the perks of a low-interest rate if it decreases. At the same time, your loss is restricted by the agreed threshold placed on the maximum interest rate.
  • Offset Interest Rate is a new option and has become popular very quickly. Because all of your accounts are connected, when money flows into one, it increases the accumulative balance. This makes it easy for the interest rate to decrease.

Eligibility Criteria for Home Loans in Dubai

There are certain conditions banks have to follow before approving your loan. It is a set of criteria one must meet before applying for a home loan in Dubai. This criterion is as follows:

  • You should have been living in UAE for six months (minimum). In some cases, this limit can be of one year.
  • You should have been working at your current for at least six months.
  • A clean credit history. A credit history marked with late payments decreases the chances of getting home loan approval drastically.
  • Your employer should be listed in the bank you are applying for a home loan with. This is a pre-requisite requirement of most banks.

The amount of bank loans which can be granted to you depends on many factors of which your salary tops the list. Your salary allows the bank, or the lender, to judge whether you will be able to pay back the loan with interest or not.

It is important to note here that the down payment expat has to pay is usually 25% of the value of the property.

Are there any Upfront Costs?

Apart from the 25% down payment, there are other amounts the expat has to pay.

  • A 4% transfer fee
  • Valuation fee. This can vary from 2,500 AED to 3,000 AED
  • Real estate commission. This is usually 2% but can vary

Repayment Plan

The typical practice is to set your repayment value at no more than 25% of your monthly income. However, each bank has its own methods to set the repayment value and they may, or may not, consider if you are already in a debt or not.

How to apply for Home Loan in Dubai?

Firstly, you must be in possession of the following documents:

  • Your salary slip.
  • Passport copy.
  • Bank statement for the last six months.
  • Your current residential address along with proof that you have been living there for the last six months.
  • If you are a business owner, you must have your trading license.

Once you have the documents in place and in possession, the rest is just about following the procedure. Firstly, compare the pros and cons and decide whether you should go to a bank or a lender. Once decided, carefully analyze each interest rate option and decide with which you should proceed. Keep in mind that this is the most crucial step as this will determine your future lifestyle and economy. Once you have an acceptance letter, search for the property that suits your budget and preferences.

Negotiate and set the price. When you reach a deal with the property broker, make the deposit to confirm your deal and set the completion date so your bank can make the payment.

For an ex-pat, getting settled in Dubai and buying a property is certainly a huge decision, both socially and financially. It should always be backed up by proper planning and research. If you are lucky and smart, you may be able to land at a good price and get your home loan approved at great terms.

A word of advice at the end, no matter how much research you do, make sure to consult an expert too!

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