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While statistics show that majority of property purchases are done in cash, the enduring low interest rates definitely entice end-users. With this, they can consider the option of offsetting the rising rents with mortgage installments. Since mortgage is a long-term commitment, it is essential to understand the complete procedure and how you can fit in to get the right mortgage.
Mortgage processing involves a sequence of steps. Banks offer mortgage for ready and off-plan properties; however, certain banks do not finance all developments or developers. The maximum mortgage term is 25 years and can reach a maximum loan to value of 80 per cent of the property's market value.
The market offers competitive interest rates, so conduct due diligence. Dealing directly with one bank can limit your options as different banks offer different terms. Hence, engaging the facilities of an independent mortgage consultant might be the right way to secure a favourable term.
The most important factor to consider is the difference between a fixed rate and an adjustable rate. Most financiers offer loans based on internally set rates or Emirates interbank offered rates (EIBOR). Determine how much you can afford. They would review your credit requirement and advise you to provide the needed documents. Your employment and financial net worth are the formative factors for approval.
A pre-approval is the first step of the mortgage process wherein the lender verifies the borrower's information and documents to determine how much they can lend to the borrower. The amount is based on income and credit information.
With a pre-approval, you get a fair idea about your price range and start your home search. Once the property is identified, the buyer and the seller sign a memorandum of understanding (MOU). Both parties generally issue a cheque amounting to 10 per cent of the agreed sale price in the name of each other; the cheques are kept by the real estate office as a commitment towards the deal.
To get the final mortgage approval letter from the bank, the buyer needs to provide a copy of the title deed or sale and purchase agreement along with the floor plan and signed MOU copy to execute market valuation of the property.
Upon obtaining the market valuation report, the bank prepares the final offer letter and contracts as per the agreed terms and conditions. When signing the loan agreement, the buyer may have to give security cheques to cover up the monthly installments and the whole loan amount. The buyer also signs the life and property insurance documents and standing instructions to debit the premium as per the agreed terms by the lender.
Both parties need to apply for a no objection certificate (NOC) at the developer's office for title transfer and mortgage registration at the Dubai Land Department (DLD), or at the developer's office if the sale happened in Abu Dhabi. Once the seller pays off all the service charges, an NOC is issued.
A bank representative takes an appointment at the DLD to process the transfer. Along with the representative, both the buyer and the seller need to be present at the DLD office. Once all the documents are verified, the buyer pays the transfer fee. Both buyer and seller sign an official document of transfer; the buyer pays a trustee fee to complete the transaction.
Once the title deed is issued, the bank keeps the original copy and hands over the attested copy to the buyer.
Likewise, the transfer of ownership of property in Abu Dhabi happens in the developer's office after paying the required fee. The new sales and purchase agreement is then issued under the new buyer's name.
Source: Dhiren Gupta, Special to Freehold
The writer is Managing Director - 4C Mortgage Consultancy