Financing your villa purchase

Buying a Villa? Learn how you can secure a loan for your dream house in Dubai.  

With villas booming in prime estate locations, and with rising property cost it can be arduous task to finance your dream property to call home. There are more than 30 lenders in Dubai offering a variety of mortgage packages, so it is worth taking the time to find the best deal for your dream villa. It is advisable to get approval for your mortgage in principle before you start looking for property; else you might just fall in love with your villa that you are in no position to bid for.

Also, Banks feel safer offering loans on villas compared to apartments. Apartments are thought to be slightly riskier, because there is a greater supply but many lenders will still offer mortgages on apartments on the same terms.

Different banks and lenders in Dubai have different lending criteria and each institution uses different guidelines to assess a borrower’s ability to pay back a loan amount for villas in Dubai. Some of the key factors that lending institutions look while processing loans for villas are:

• Other financial commitments you may have at the time of application for the loan including credit card debts and limits – under Central bank laws, no more than 50% of your total income should be committed to paying off your debts including mortgage payments, credit cards, other loans etc.
• Current income and income type (full time, contract etc.)
• The loan amount compared to the value of the property you intend on purchasing
• Lifestyle factors such as number of dependents.
• Type of loan requested
• General living expenses
• Current savings and other assets

There are various terminologies used in mortgaging which can help you understand the various nuances while securing a loan for your priced villa.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Early Repayment Charge (ERC): This is a penalty imposed by lenders on borrowers who wish to pay back the loan amount before the agreed term of loan payment. ERC varies based on whether the mortgage is a fixed or variable interest rate loan.

Loan-to-Value Ratio (LTV): The LTV is the amount of money borrowed relative to the value of the property. If the LTV is 80%, this means that the borrower will be making a down payment of 20% and has applied for a mortgage loan of 80% of the value of the property.

Equity Release: Equity is nothing but the difference between the value of your property and what you owe on it. As you make payments, the amount you owe on the property begins to decrease and you can build up equity in your property; the same is true if the value of the property rises from the time you purchased it. Many lenders will allow borrowers to use this equity for further borrowing purposes; therefore, depending on your financial circumstances, equity in your home can be released to finance other requirements such as buying a car or building up an investment portfolio. Equity release is a great way of getting money out of the villa property you own.

Don’t take the loan plunge without doing research

Many applicants make the mistake of going straight to their banks for mortgage loans; however, they might be missing out on better deals that can be obtained by doing a little research. If the thought of dealing with this seems overwhelming to you, there are mortgage brokers who can do the legwork for you and will also help with all the required paperwork and documentation. Or you can do it yourself, comparing deals at the growing number of price comparison websites, such as Souqalmal.com and Moneycamel.com. These show rates both from international banks operating in the UAE, such as Barclays, HSBC and Standard Chartered, and Islamic finance from local lenders such as EmiratesNBD, Mashreq and Abu Dhabi Islamic Bank.

To know more on how to secure a loan from bank for your villas, contact us at MyVilla.com.