How to get a mortgage in Dubai

While cash-based purchases are predominant in Dubai, mortgages are on the rise and comprise a fairly sizable portion of recent property investments. According to the Central Bank of UAE, mortgages comprised 15% of property investments in 2018 (for properties under AED 10 million).

Home loans are relatively easy for UAE nationals, expat residents and non-resident foreign investors to secure in Dubai. Banks primarily require a valid ID and proof of income, which can be from a salary, self-employed income or assets. Pre-approvals can be obtained within 3-4 days with an extra week for the final mortgage letter.

Applicants should seek pre-approvals before beginning their property search to determine if there are any restrictions on their budget, and certainly before they put down a deposit.

Most major banks in Dubai offer home loans, leaving applicants spoiled for choice. Each bank offers its own terms and it’s important to know that mortgage rates are updated regularly based on EIBOR (the Emirates Interbank Offered Rate). Since the UAE Dirham is pegged to the US dollar, local rates in Dubai will change in accordance with any changes the US Federal Reserve makes to its interest rates.

As such, soon-to-be homeowners will find themselves sandwiched between attractive property prices and a fluctuating mortgage rate, and will need to assess the best way to structure their mortgage. Applicants can also seek the services of mortgage advisors to determine the right loan and rates for their needs.

Whether the applicant goes through a mortgage advisor or works directly with a bank, negotiation is key as home loans are structured on a case-by-case basis in Dubai.

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Eligibility for mortgages

To be eligible for mortgages, expat residents and UAE nationals must be able to demonstrate a stable income and have a good credit rating. Minimum salary requirements are typically $1,900 (AED 7,000) for UAE Nationals and $2,700 (AED 10,000) for expats. Some banks have a list of approved employers and will decide eligibility based on this.

According to local debt burden regulations, the value that must be repaid on a monthly basis must not exceed 50% of the applicant’s monthly income. This value encompasses all debt that must be repaid, from credit card debt, personal loans and auto loans to home loans.

In other words, an applicant who currently has no debt can expect a monthly payment of up to 50% their monthly income.

Banks prefer to make loans to residents as they have more means to recover their money. As such, mortgage options are limited for non-resident foreign investors. Eligibility for non-resident home loans varies by bank and depends on criteria such as nationality and whether or not the applicant already owns a property.

Applicants must be at least 21 years in age to apply for a home loan and must complete their payments by the legal retirement age – 65 years for salaried applicants and 70 years for self-employed applicants.

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Mandatory down payment

In order to safeguard banks, the government of Dubai mandates that UAE Nationals must make a down payment of at least 20% on their first home if the property value is no more than $1.36 million (AED 5 million). If the value exceeds AED 5 million, UAE Nationals must make a down payment of at least 30%. An exception applies to government housing schemes for UAE Nationals, where the down payment required is 15%.

Expat residents and foreigners must make a down payment of at least 25% on their first home for properties that are valued under AED 5 million, and 35% for properties over AED 5 million. Non-residents may be asked to make a higher down payment, typically 50%.

For subsequent homes, UAE Nationals must make a down payment of at least 35% regardless of the value of the property. For expat residents and foreigners this figure is 40%.

Down payments

Type of propertyResidentsExpats
< AED 5 million15-20%25%
> AED 5 million25%35%-50%
Second home35%40%
Construction home50%50%

Down payments on properties that are still under construction are typically higher, at 50%, for all applicants. In some cases, developers may offer schemes where the down payment required is significantly lower or delayed.

In order to help offset the burden of the high down payment, banks may offer other loans to cover the costs of registering the property and other associated fees.

Required documents

In most cases, banks will ask for the following documents:

Valid passport copyGovernment issued ID card or Emirates ID (if applicable) • Bank statements – 3-6 months for salaried applicants or 12 months for self-employed applicants • Business audit and business bank statements – for up to 24 months for self-employed applicants • Salary payslips – typically 6 months for salaried applicants • Salary certificate – for salaried applicants • Tax returns in home country (if applicable, for non-resident foreign investors)

Conventional vs. Islamic mortgage

Sharia law does not allow an individual or institution to profit from money lending, i.e., to charge an interest. Islamic mortgages are structured differently, where the bank purchases the property and then sells it back at a profit. The applicant then pays for this with monthly instalments. Or, the bank may purchase the property and lease it back. Applicants can choose which mortgage option to choose, Islamic mortgage is quite popular among Emiratis.

Some of the finer terms are also different when it comes Islamic mortgages. Interest will not be charged on late payments, but a fixed fee may apply instead. This may be attractive to some applicants. In conventional mortgages, early settlements are capped at 3% of the remaining loan value (plus VAT). Islamic mortgages are not bound by the same regulation and early settlement fees may vary by bank.

Picking the right mortgage

Home loans vary tremendously across banks and according to the applicant’s profile and needs. The following criteria should be considered when choosing a mortgage provider:

Type of property

Banks will typically finance any ready property in Dubai that has a title deed. When it comes to off-plan or under construction properties, banks may limit which developers they are willing to finance. In general, banks will finance residential villas and apartments for all applicants but will only finance plots of land and farms for UAE Nationals.

Minimum salary

Banks offer different rates and finance amounts for different salary bands. Some banks require that salaries be transferred to an account in their bank, to protect their liabilities in the case of non-payment. To incentivise the salary account transfer, banks may be willing to waive processing fees or provide more competitive rates.

Maximum finance amount

This sum depends on the applicant’s debt burden ratio and varies by home loan product.

Interest rates – Fixed vs. Variable

Fixed rates are typically offered for 1-5 years after which they revert to a variable rate, which is calculated based on the daily EIBOR rate (plus a margin by the bank). Fixed rates allow for peace of mind and easy calculation of the monthly payment, but can cost more in the long run. In contrast, variable rates are market rates – if EIBOR rates go up, so will the variable rate.

Flat vs. Reducing rate

Payments can be structured by flat rate or by reducing rate. Flat rates are calculated based on the entire sum of the loan for the entire tenure of the loan. These promise easy calculation of monthly payments but are more expensive in the long run. For example, if the loan amount is AED 1,000,000 and the flat rate is 2%, the monthly payment will be AED 20,000 until the loan is complete.

In contrast, reducing rates are calculated against the remaining balance of the loan. Reducing rates can be complex to calculate but work out much cheaper.

Arrangement fee

A processing fee of 1% of the loan amount is typically charged, though this may be waived if the applicant already has a salaried account with the bank or if a specific rate is selected.

Repayment period

The tenure of a home loan in Dubai is typically 25 years or until the legal age of retirement. Some mortgage providers offer a ‘grace period’ or delay the first instalment payment by a few months.

Early settlement

The Central Bank of UAE mandates that early settlement of loans be charged at 3% of the outstanding amount (plus VAT) or the cost to the bank, whichever is lower. However some mortgage may charge an additional processing fee for balance transfers.

The settlement fee is especially important if the applicant plans to sell the property in the future, as the mortgage must be cleared in full before the property can be sold.

Penalties for overpaying

Some banks allow extra repayment up to a certain limit a month without any penalty or fee.

Mandatory insurances or ‘Takaful’

Most banks require the applicant to take out a property insurance as well as life insurance to be eligible for the home loan. These insurances may be issued by the same bank or by an external provider. In the case of an external provider, the bank may charge a fee.

Valuation fee

Before approving the loan, banks will value the property to ensure the asking price is reasonable according to the real estate market. A valuation fee of around $680-955 (AED 2,500 to 3,500) will be charged for this.

Banks may impose additional terms and conditions beyond the above listed criteria. For example, late payment charges and interest, and balance transfer fees may vary by home loan product and bank. It is always best to understand the finer details and to have all terms discussed in writing.

Applicants can begin their search for mortgages by comparing available products at websites like Souqalmal.com and then contacting banks for a personalised offer.