First-time home buyers tend to find the process of approval of mortgages rather confusing. So, we have created this guide to explain everything about mortgages and walk you through the different steps in a typical mortgage approval process.
The United Arab Emirates has become an increasingly popular destination, especially in business-friendly areas such as Dubai and Abu Dhabi. In recognition of this trend, the mortgage market in the UAE is now well-established, with both international as well as local banks offering home loans to UAE nationals and expatriates.
What are the steps in the mortgage approval process?
The lending process can vary from one borrower to the next, due to a variety of factors. So your experience might be slightly different from the one outlined below. Given below are the six steps that usually take place before a home loan is approved by a bank.
Pre-approval is when a bank reviews your financial situation (particularly your income, assets and debts) to determine if you’re a good candidate for a loan. They’ll also tell you how much they are willing to lend to you and provide you with a pre-approval letter to that effect. The lender might also check your credit reports and scores at this stage.
House Hunting and Purchase Agreement
Once you’ve been pre-approved for a certain amount, you can shop more confidently within that price range. And that brings you to the second major step in the mortgage approval process — house hunting. Your mortgage lender isn’t heavily involved at this stage. The house hunting work is primarily done by the buyers and their real estate agents.
Mortgage Loan Application
This is a straightforward step in the process because most banks use the same form. . The application asks for information about the property being purchased, the type of loan being used, as well as information about you, the borrower.
Once you have a purchase agreement and a completed loan application, your file will move into the processing stage. This is another important step in the broader mortgage loan approval process. Loan processors collect a variety of documents relating to you, the borrower, as well as the property being purchased. They will review the file to ensure it contains all of the documents needed for the underwriting process. The loan processor may also order a credit report, or a home appraisal to determine the value of the property.
The underwriter is the key decision-maker during the mortgage approval process. He has the authority to reject the loan if it doesn’t meet certain pre-established criteria. The underwriter will double-check to ensure both the property and the borrower match the eligibility requirements for the specific mortgage product or program being used and evaluate the level of risk associated with your loan.
Mortgage Loan Approval and Closing
If the mortgage underwriter is satisfied that the borrower and the property being purchased meet all guidelines and requirements, he will label it “clear to close.” This means all requirements have been met, the loan can now be funded, and the approval process can be closed. Closing is the final step in the mortgage approval process.
What are the different types of mortgages in UAE?
Mortgages in the UAE are available on a fixed-rate or variable-rate basis. Fixed terms are usually around five years, although they can be as short as one year. At the end of the fixed term, the deal moves on to the bank’s variable rate. Fixed-rate mortgages allow you to have certainty about the size of your repayments for a set amount of time, but it’s worth considering a variable rate deal if interest rates look likely to fall. Terms are generally set at 25 years, and the loan will usually need to be repaid before the age of 70.
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What are the mortgage rates in UAE?
Mortgage rates in UAE vary significantly depending on the lender, property, and the financial circumstances of the borrower. As of 2020, rates start at 2.75% on a one-year fixed rate, 3.89% for three years, or 3.99% for five years. These are the lowest rates on the market, so you may need to pay considerably more. In the last couple of years, the mortgage market in the UAE has slowed, as many buyers have instead elected to buy homes direct from developers using payment plans instead of mortgages. Mortgage rates in the UAE can vary greatly over time, depending on the country’s economic situation and oil prices.
How to apply for a mortgage in UAE?
To apply for a home loan, you can either approach banks directly or take advice from a mortgage broker. In the likes of Dubai and Abu Dhabi, you will also encounter comparison websites where you can weigh up deals from a range of lenders. A mortgage broker can be a great asset. They will be able to help you navigate the quirks of the local market and find you the right deal for your circumstances. Mortgage applications in the UAE are usually processed in the space of a few weeks.
What are the documents required to get a mortgage in UAE?
When applying for a mortgage, the documents you will need may vary depending on which bank you are using. Banks are likely to ask you for the following:
- A copy of your passport
- Proof of residence in the UAE and proof of your current address
- Financial documents, such as proof of salary, bank statements, or your tax return
Thus, these were the six major stages that occur along the way to a mortgage loan. We hope you’ve found this guide to the mortgage approval process helpful, and wish you all the best in your home-buying quest.