Financing options for foreign investors
Dubai is a paradise for foreigners looking for a luxurious lifestyle in a modern, well-developed city-state. Not only do professionals move here for a career boost, but it can also be a fantastic destination for families, too, with a range of activities for all interests and ages. If you’re planning on staying in Dubai for the longer term, you might be tempted to buy a home to suit your individual needs. The good news is that this is perfectly possible for a foreign resident, and mortgage providers are well equipped to deal with foreigner and nonresident mortgage applications, whether you are looking for an investment or for a new family home.
Whatever your reasons for looking for a property in Dubai, you need to understand the type of mortgages available, and the steps needed to get one set up. This handy guide covers which banks offer mortgages and home loans in Dubai to non-residents, the paperwork you will need to get your loan, the legal ins and outs, and what it might cost.
Types of mortgages.
The mortgage market in Dubai is very well developed. There are dozens of different mortgage providers, from globally known brands to more localized institutions. The range of choice means that you need to do a bit of research in advance to understand how the different products work, so you can make a considered decision about which suits your needs best.
As a foreigner, you can apply for a mortgage in Dubai either for a home you intend to live in or as an investment property. However, depending on your circumstances, and the specific property you want to buy, the amount of deposit you’re asked to pay will change. Usually, if you’re looking for an investment property you’re seen as a greater risk and therefore the bank will ask for a higher initial deposit. Expats buying an investment property are likely to be asked to pay up to 40% of the price upfront as a deposit – and this rises to 50% if you’re buying off-plan. However, if you’re looking to buy a home to live in, the deposit amount is more likely to be in the region of 25%.
It is also useful to know that the amount of mortgage you can legally be offered is restricted. As a foreign buyer, the full amount you must repay – including both the principal and interest – cannot be more than the total amount you can expect to earn in seven years.
The first thing you have to decide is whether you want a fixed rate or variable rate product. Fixed-rate mortgages will guarantee the same interest rate will be applied for the duration of the agreement. This is usually in the region of about five years, after which the mortgage will revert to a rate set by your bank. This rate isn’t always the best deal available, so it’s good to understand the small print and know if you can switch if there’s a better offer available after the fixed term.
Your alternative option is to take a variable rate mortgage. Unlike a fixed rate product, these can cost more or less depending on how the interest rates change. They’re a good idea if you think that rates are going to fall within the term of your loan.
In Dubai, it is possible to get an interest repayment only mortgage, but the term of this won’t be longer than five years.
Different banks and brokers will offer different products, and not every customer can access all of the loans available. There are often specialist mortgages for first time buyers or investors, for example, which might not suit your needs as a foreigner buyer. You’ll likely need to take specialist advice to help you understand all the products available to you.
Bank or a broker?
You can choose to arrange your loan directly with a bank or loan originator or have a broker help you to do so.
A really great resource for finding a mortgage in Dubai is Souqalmal.com. This comparison site allows you to search for mortgages that are suited to your needs as a foreigner buyer and generate potential options for you. You are then able to apply directly to the institution for your loan.
In some cases, for example, where you are unsure of your eligibility for a mortgage, it might be a good idea to take expert advice from a qualified mortgage broker. This is especially important if you are new to the Dubai mortgage market and not familiar with all the options or regulations.
Legal requirements for foreigners.
Since a change in the local law in 2002, foreigners, resident or not, can legally buy property in Dubai, and apply for a mortgage. This fueled a big rise in foreigners buying homes in Dubai, either for themselves or with a view to renting the place out at a profit.
When it comes to mortgages, individual banks will set their own terms, and not all will work with foreign buyers due to a perception that foreigners buyers involve increased risk to the bank. Because of this, the banks which do work with foreign buyers insist that investors must pay significant down payments before the purchase can proceed.
How to get a mortgage in Dubai as a foreigner.
The options open to you for getting a mortgage in Dubai vary depending on your personal circumstances, and the value of the property you want to invest in. Offers vary, so it’s worth talking to a few brokers or banks to see what deals they can offer you.
Getting your mortgage arranged in Dubai should not take more than a couple of weeks. It’s a good idea, though, to get advance approval from the bank to confirm what you’ll be lent. Then once you find a home you like in your budget, you can finalize the mortgage more easily.
The exact paperwork you will need will depend on the bank you use. However, you can expect to be asked for the following:
- Copies of your personal identification documents (passport)
- Proof of legal residence in Dubai, and evidence of your current residential address
- Documents to prove you’re creditworthy (usually bank statements, proof of your wages, tax returns, or a letter from your employer)
- Documents to prove the affordability of the mortgage
All over the world, affordability is an important deciding factor in whether or not you’ll be offered a loan. In many countries, you must be able to prove that the repayments on the total amount of debts you hold amount to no more than 30% to 35% of your usual income. However, in Dubai the law actually only requires that your debt payments come to no more than 50% of your income, so many banks are more flexible with this than in other countries.
The step-by-step process.
To get a mortgage in Dubai, you will generally need to follow these steps:
- Decide if you want to use a broker to explore your options for a mortgage
- Choose a mortgage that suits your needs, and find a qualified local lawyer to help with the transaction
- Hand over the paperwork requested to get a finance pre-approval, which is sometimes called a mortgage offer in principle. Your bank will give you a letter confirming what they will lend you
- Find a property within your budget, and agree on a purchase price with the seller
- Pay your deposit to secure the sale, and agree on a completion date
- Provide any additional documentation needed to confirm your mortgage, including searches on the specific property you have chosen
Arranging a mortgage in Dubai will mean you have to have fees to pay such as administrative fees and legal costs. The exact prices of fees applied will vary depending on your circumstances, but when you add it all together, it’s a costly transaction.
In Dubai, when arranging a mortgage, you can also expect to pay a fairly large deposit and fees including the following:
- Mortgage registration fee: 0.25% of the value of the mortgage
- Bank fees including processing fee, property valuation fees, and insurance registration fee
Loan protection insurance (mortgage life insurance): usually compulsory, the costs vary wildly depending on the value of your property and mortgage, and your personal circumstances
Depending on the situation you might find that there are other costs, both in taxes applied and the costs of arranging the loan. However, the major initial outlay will be the deposit you have to pay to secure the loan and the sale. If you are buying an off-plan property this could be up to 50% of the total cost.
Whatever your situation, you will incur costs, and if your main account is outside of Dubai, you might need to send money to yourself from abroad to pay fees and incidental costs. If this is the case, then it is important to check what you’ll be charged when you make an international money transfer. You will probably find that your home bank won’t offer you the best deal. Even if they claim to offer fee-free transfers, you can be sure their cut will be rolled up into a poor exchange rate.
A better option is the use a specialist service like TransferWise, to transfer cash using the same real exchange rate you can find on Google with only a small, transparent fee.
Major banks in Dubai providing mortgages for foreigners.
All major banks in Dubai offer mortgage products, with a reasonable choice of loans that are suitable for foreigners, and non-residents. Check out the fine print of the products offered, as they come with fairly strict terms and conditions.
You might be able to get a local mortgage with one of the following brokers or banks:
- Global banking giant HSBC has a good range of mortgage products for Dubai, including some which are suited to foreigners looking to invest in Dubai without living there
- Mashreq is a UAE based bank which has mortgages for foreigner residents and non-residents alike
- Emirates NBD is another good choice for a wide range of mortgage and loan products