Planning to finance your off-plan property using a mortgage? Here is a detailed guide of what you should know.
A mortgage loan is taken from a bank or financial institution, to raise funds to buy real estate.
What you should keep in mind while taking a Mortgage for an Off-plan/Ready Property?
Other points to consider:
Banks who offer to finance for an off-plan property are selective of the off-plan projects they would be financing. They only approve mortgage loans for properties that belong to master developers like Emaar Properties, Meraas and Dubai Properties. Occasionally they approve loans for projects belonging to certain other developers too.
The Process for Buying Ready Property
The Process for Buying off-plan Property
The Process for Cash Buyer and Mortgage- free Property
When there is an existing mortgage on the property, the loan must be settled before transfer to the buyer. To do so, the seller must first request a liability letter from the lender (bank). This letter states the balance of the loan, as well as any fees and penalties. The liability letter generally has a validity period ranging from 7-15 days, depending on the bank. Therefore, it is important to time the request for the letter so that it does not expire before the transfer date, otherwise, a new letter must be requested.
If the seller does not have the funds to settle the mortgage, then the buyer must do it. Since a cash buyer needs protection against the seller transferring property to another person or changing the terms of the agreement after the buyer pays off the seller’s loan, it is important to “block” the property. Once the liability letter is received, the parties must go to the RT office to block it.
After the property is blocked, the seller delivers the cheque to the lender, although some banks require the buyer to be present as well. After the mortgage is settled, the clearance letter and original title deed are provided to the seller.
The NOC process then takes place. When received, the parties proceed to the RT office to transfer the property. The cheques are disbursed and the buyer takes the original title deed.
If a buyer needs financing, a pre-approval letter should be obtained to determine the maximum amount the bank is willing to lend the buyer. The benefit of pre-approval is twofold: buyers and brokers can set a price range when searching for a property, and sellers will take the offer more seriously. To receive the pre-approval letter, salary certificates and bank statements are required by the lender. The pre-approval letter has an expiration date, so time is of the essence for the buyer to find a property and negotiate an agreement.
Once the parties have signed the contract and the deposit is handed over, the lender will conduct a valuation or appraisal of the property’s value. The valuation fee generally ranges from Dh2,500 –Dh3,500 and is paid by the buyer.
If the property is valued for at least the purchase price, the bank issues the final offer letter (FOL) to the buyer. The FOL includes all the terms and conditions of the loan and mortgage. The buyer arranges with the lender to sign the FOL and issues security cheques to the bank, as required.
The parties then apply for the NOC. Once it is obtained, the lender schedules the transfer at its preferred RT office. The buyer must bring the following manager’s cheques:
After the property is blocked, the seller will deliver the cheque to the lender, although some banks require the buyer to be present as well. After the mortgage is settled, the clearance letter and original title deed are provided to the seller. The NOC process then takes place. When received, the parties proceed to the RT office to transfer the property. The cheques are disbursed and the buyer takes the original title deed.
Since there are two mortgages and perhaps two banks in this scenario, and all documents have varying processing times and expiration dates, the timing of requests for the liability letter, valuation, final offer letter, and NOC is very important.
After the buyer and seller sign the agreement, the buyer’s bank conducts the valuation of the property and the FOL is signed. Next, the seller requests a liability letter from the lender. Once the liability letter is issued, it is sent to the buyer’s bank, which settles the mortgage with the seller’s bank.
After the mortgage is settled and the clearance letter and original title deed have been received, the parties apply for the NOC. When the NOC is ready, the buyer’s lender arranges the transfer.
At the transfer, the seller’s existing mortgage is released. The fee for the release is Dh1,290, which is paid by the seller. The property transfer documents are signed. The buyer provides the cheques, as described previously, and the buyer’s lender issues a cheque to the seller for the remaining balance of the purchase price.
The buyer’s mortgage is then registered and the buyer’s lender retains the original title deed until the mortgage is paid in full.
Non-UAE residents can get a mortgage from lenders operating in the UAE; however, there are some restrictions. The UAE Mortgage Cap law requires non-UAE residents to make a down payment of at least 25% of the property value (20% for UAE nationals) plus associated purchase costs. This goes up to 35% (30% for UAE nationals) plus costs for properties above AED 5 million. And if you are buying a second or third property, as an investment, for example, you will need at least 40% of the property value to cover your down payment.
|Purchase Type||Purchase Price||Maximum loan-to-value ratio (LTV)||Minimum down payment|
|First property||Under AED 5 million||75%||25%|
|First property||Over AED 5 million||65%||35%|
|Second, third + property||Any price||60%||40%|
|Off plan / under construction||Any price||50%||50%|