A lot to know before choosing a mortgage

Where to start?

There are many factors that need to be taken into consideration when trying to obtain mortgage.
Firstly, which bank will accept particular property as a suitable security?
Master developers such as Emaar , Nakheel and Dubai Properties are accepted buy all banks, but those projects from the private sector are acceptable to a handful. They will be able to put the customer in contact with a partnership bank, but without alternative options, the customer may face a problem if doesn't fit their criteria.
All banks will lend on a completed property, so unless one plans on selling it during the construction period - which is becoming ever more popular among UAE property investors - this should not affect the re-sale value.

Efficient international administration is very important when deciding which lender to use. Bad communication and poorly trained bank staff can turn a standard mortgage application into a nightmarish journey back and forth to the bank with mountains of paperwork and documentation.

One should be sure that the bank's in-house mortgage advisor fully understands the provided information, especially concerning the structure and the source of the income. Annual bonuses and housing allowances are always great area, and an inexperienced advisor may over-estimate exactly how much finance is available and how it relates to the bank's policy.

The last thing one needs is to get to the point to be told by the agent or the sales rep that the mortgage will be agreed, only to be told by the bank a week later that they won't be able to offer the full requested amount.

Than the client should either increase his own deposit or re-apply to another lender, both taking up more valuable time, potentially loosing the property.

There is only a handful of lenders that are efficient enough to arrange a mortgage in the required timescale and fully understand the requirements.

Which one of these banks to apply to?

One should decide after some research which bank offers the most suitable payment structure.

The structure of Islamic finance mortgages must be compliant with Sharia law, so that Muslim applicants can borrow money. However, these loans can be a useful finance tool for anyone - especially if one is purchasing a property still under construction.

Islamic finance is more of a "business partnership" than mortgage, and it can be very flexible for the individual borrower, especially since no monthly payments are requested on any funds borrowed for instalment payments while the property is under construction.

For example, let’s assume one have been offered a 9o% mortgage by an Islamic Bank. The bank takes over all payment responsibilities after the initial 10% are paid to the developer.
The developer will request all instalments from the bank that ensures that all payments are made in co-ordination with the developer’s timescale.
By the time the property has been build, the client may have already borrowed 40% of the total amount required to purchase the property. By borrowing this 40% from an Islamic bank instead of non-Islamic, one will not be due to make any payments until the building stage is over or sell the contract (whichever is first).

Instead of charging interest to the customer, the bank takes share of the profit for helping to purchase the property, and the customer pay this to them as a lump sum when the building is completed, not on a monthly basis.
This helps to reduce the burden of additional monthly payments, especially if one is planning to sale the property for a quick profit after 12-18 months. This only applies during construction, and the customer must make regular payments to try and reduce the overall debt once building work has completed and the full purchase price has been paid.

There are also some banks that are finally taking rental income into consideration when the customer wants to purchase an additional property to rent out. This is helpful when the main income streams alone, but is not considered high enough to support the additional borrowing required for an investment property.

Few banks are now looking at applicants’ individual circumstances with a common-sense approach to lending. Hopefully, this is a sign that the mortgage market is becoming more competitive, which will ultimately benefit customers.
(By Gergana Mineva)