Financing

Financing a property has become the norm here in Dubai. However there is an absolute maze of different packages available to property investors. Your first step toward securing finance is preparation and comparisons to select the right bank and the right financing option for you.

Don’t be shy, look around, look at the bank and their reputation, their service, and their quality of property financing products. You are after all, buying money. Speak to as many property lenders and ask the right questions to all and compare the answers.

Ask for a breakdown of the costs involved and most important, make sure they commit to the timeframe for approval once you submit the contract when you have selected and secured your property subject to and conditional upon finance.

In very simple terms, there are two primary or preliminary assessments that the property financiers undertake before approving finance.

Firstly a property financier will look at the applicant (the person/s). They will examine your credit history and your credit rating. If you have had bad credit history or have not paid a past debt, you may well have a problem. So do ensure you have settled all outstanding old debts before you apply. The bank will also look at your ability to save monies (i.e. your budget control), your income level and they, assess the stability of your employment and your income which determines your ability to re-pay in the long term. As a guideline, your mortgage repayment should only be about 35% of your net income. Don’t over commit yourself, you will end up regretting and this is a fast way to compromise your standard of living. Your deposit or rather the level of your own funds you have to contribute, will heavily influence your borrowing capacity.

Secondly, the property financer will look closely at the property to ensure their monies are not at risk. This often means that the lender will require a professional property valuation on the property which represents the bulk of the cost of finance to the borrower. Each financier will have differing charges for valuations.

When the bank engages the professional to value the property, they are assessing the bank’s risk in lending the monies. The loan amount approval is linked to the value of the property as the banks in most circumstances will only permit 70% or 80% or sometimes up to 90% of the value of the property. If you have paid too much for the property and signed a contract to buy subject to finance approval, then the loan will be rejected as the bank�s investment with you and the property will be high risk, sometimes too high. This is the reason why when you sell a property, you cannot oversell it when the buyer requires finance.

Another interesting point, the whole process can be a little stressful if the bank delays in processing the loan application. Therefore, from the onset, ask for a list of all documents required, keep a copy your self, and ask the Bank to sign that they have received all that they have asked for, in the event one document goes astray, you have proof you have submitted and also a copy.

Your contract original must be given to the Bank. The dates and milestones to be achieved as the contract takes it�s natural course, should be noted to the Bank, if using an Agent, ask them to write a letter for you and give a copy to your bank, so the Bank is fully aware of the dates you need to advise the Seller of the finance approval. If you have obtained �pre-finance� approval and have a letter from your Bank stating the same, then the whole process is actually easier and smoother, as the Bank is prepared, you are prepared, and you allow for this in the contract in the time commitment to gain the formal approval for the loan. You and the Bank also need to agree on how long it will take once the loan has been approved, till they are ready to draw the loan amount ready for settlement. Therefore, make sure there is sufficient time to complete the transaction and keep checking with the Bank. When using an Agent, they can be very helpful at this point. The Buyer�s Agent has had lots of experience and generally keeps good contact with the loan provider if you permit.

The mortgage industry here in Dubai has grown considerably over the past few years. It is believed that by the end of 2008, the loan process, the range of mortgage packages and the finance companies ability to process and complete applications shall be second to none in the world providing the borrower submits all the necessary documents required on time and with the new Standard Contract and Real Estate practices in place. Purchasing property in Dubai shall be easier in the new regulated environment

RERA will be hosting for finance companies and property finance institutions, workshops on the new standard contract, how it works and help familarise all finance institutions, with adapting to the changes. Interested finance people should visit our Workshops, Seminars and Events page to see the workshop timetables.