Buying a property in Sharjah is exciting. However, buying a home outright with cash or personal savings is rarely a realistic option for most people. Securing a mortgage finance then becomes a key step to actualizing property ownership.
To buy a property for sale in Sharjah, you need to be well-versed in:
- Lending parameters
- Types of mortgages
- Mortgage calculations
All of this will facilitate a smooth and stress-free buying experience.
Understanding Mortgage Eligibility
When you apply for a home loan to buy a property in Sharjah, you need to meet the criteria. The Central Bank of the United Arab Emirates outlines this.
The eligibility and loan limits differ for Emiratis and expats.
For UAE Nationals:
- For properties worth 5 million AED and below: Financing of up to 80% of the property value.
- For properties above 5 million AED: Financing up to 70%.
- For the second or investment properties: A maximum of 65% loan-to-value ratio.
For Non-Residents:
- Homes priced at 5 million AED or less: Borrow up to 75% of the property value.
- For real estate deals of 5 million AED or more: The maximum loan amount should not exceed 65%.
- Investment or secondary home: Financing is limited to 60%, applicable only for ready properties.
For Off-plan Properties (Under Construction):
UAE nationals and expatriates can borrow a maximum of 50% against the property value.
Mortgage Affordability
Your mortgage affordability depends on different:
- Financial factors
- Personal factors
Banks will consider your affordability and exposure to debt to ensure sustainable repayment.
Banks also use the Debt Burden Ratio (DBR) to assess the affordability. It is calculated by comparing total debts as of the date with the current monthly income.
Lenders sometimes charge a slightly higher rate to cover potential hikes in interest rates. As a rule of thumb, a borrower’s income must be at least four times the estimated monthly mortgage installment.
Types of Mortgages in Sharjah
Picking the right mortgage is just as crucial as finding the right Sharjah property.
Here are some options.
Fixed Rate Mortgages
- Keep repayments steady for a fixed period of one to five years, with the three-year mortgage being the most common.
- More predictability and provide protection from any rate fluctuations.
- At the end of the fixed period, the loan enters either a variable or a reversion period.
Variable Rate Mortgages
- Rates move up or down in line with the Emirates Interbank Offered Rate (EIBOR)
- Month-wise repayments may go up or down depending on the market conditions
- Suitable for those who are okay with a different monthly payment every time
Discounted Rate Mortgages
- Offers a temporary discount on the standard variable rate
- Is effective for a limited period, after which it reverts to the normal rate
Offset Mortgages
- A combination of savings or a current account with a mortgage
- Any balance maintained in the linked account is used to reduce the interest on the loan; interest is charged on the net balance between the loan and savings
Remortgaging
Remortgaging refers to transferring an existing loan to another lender. It may be to:
- Benefit from a lower rate
- Release the equity built up in the property
A refinance is a worthwhile exercise if managed strategically. However, before proceeding with the review:
- Fees
- Early settlement charges
Down Payment and Closing Costs
Borrowers must put down an amount as per the eligibility limits. However, one-off costs apply.
This includes:
- Registration fee
- Agent commission
- Bank charges
It can amount to 7-8% of the price of the property.
Some lenders allow a small part of these charges to be added to the amount of the mortgage. This frees up funds for the down payment. Some banks also give a deferral of payments for up to six months.
Rent-to-own schemes
For buyers who want to avoid huge upfront payments, rent-to-own schemes chart the alternative way of actually purchasing the home. Under such schemes, tenants pay rents that go towards purchasing the property. It can ease the pressure of making an immediate down payment.
