Home Loan Approval Factors in UAE

When you adhere to the guidelines laid down by the Central Bank of UAE for home loans in the UAE while applying for a home loan, the chances of home loan approval significantly increase. The approval criteria in the country are stringent, requiring you to have a good credit score, a decent debt-to-income ratio, and more.

However, several factors other than the mentioned two are considered by banks while making a decision regarding the approval of your home loan in UAE. Read through the article below to know all about the home loan approval criteria.

Documents Submitted

This is the first thing that banks look into when processing your home loan. Make sure you provide all the mandatory documents when submitting the application form for a home loan in the UAE. 

These documents generally include the following –

• Photocopy and Original Identification Documents – Passport, Emirates ID, and resident’s visa (for ex-pats)
• Documents for Salaried Individuals –
  • Salary certificate issued by the employer and addressed to the bank
  • Pay slips of at least the last 3 months
  • Bank statements of the previous 3 to 6 months
  • Salary transfer to the bank (if applicable)
• Documents for Self-Employed People –
  • Memorandum of Association (MOA) with all the changes
  • Bank statements for the last 6 months
  • A copy of financial audits in the last 2 years
  • Trade licence
  • Information about any existing loan
• Documents for Co-Borrowers –
  • Valid passport of the co-borrower
  • Resident visa or Emirates ID 
  • Proof of income 
  • Trade licence and MOA (in case of self-employed co-borrower)
  • Passport of the business partners (if applicable)

Credit History and Score

The al etihad credit bureau (AECB) provides banks and other lending institutions with information about your creditworthiness by presenting a credit report. This report includes your current debts, credit history, due credit card bills, and more. As per the rules followed by most banks, your credit Score should be decent to get a home loan approval in the UAE. 

Your credit score is a key indicator of your past bankruptcy, debts, and debt foreclosures. As home loans comprise high amounts and longer repayment tenure, banks generally don’t approve the applications of individuals with poor credit scores. Moreover, even if approved in rare cases, the concerned individual may have to pay a higher interest/profit amount due to the imposition of high rates. 

Thus, it is always advisable to work on improving your credit score first before applying for a home loan in UAE. This can be done by paying your credit card and utility bills (as well as loan instalments) on time, not applying for too many loans at once, monitoring your expenses, and so forth. 

Credit Utilisation Ratio (CUR)

Credit Utilisation ratio implies the actual amount of credit used by you compared to your overall credit limit. This ratio should never be more than 50% for a long duration. A higher ratio here negatively affects your credit score, which reduces the chances of getting a home loan as per your requirements. As a general rule, a reasonable credit limit here that you can try to maintain is 30% or lower. 

To control the CUR, you should pay your credit card bill before the due date, set a monthly expenditure limit, redeem rewards on your credit card, and more. It is important to note that the lower the credit utilisation ratio, the better the chances of your home loan approval.

Debt-to-Income Ratio

The debt-to-income ratio is simply your monthly financial liabilities as a ratio of your monthly income. As per UAE laws, an individual’s debt-to-income ratio must not cross 50%. This is followed stringently by banks in the UAE, which don’t approve home loan applications of users who have a high debt-to-income ratio%. 

To avoid facing any challenges due to this, you can consider paying off most of your current debts before applying for a mortgage loan in the UAE. 

Current Income and Expenses

If you have a good salary and low expenses, most banks can easily approve your home loan in the UAE. The bank processes your income with respect to the finance amount and determines whether you would be able to pay off your monthly instalments. 

If the concerned financial institution finds that you might not be able to pay off your loan owing to your monthly high fixed expenses, the chances of getting home loan approval narrow down. In such cases, you may be asked to pay a higher interest or profit rate even if your loan gets approved despite excessive expenses. 

If you are opting for an unsecured home loan, the bank will take your salary, overall debts, and expenses into consideration for home loan approval. 

Employment History

Banks in the UAE also consider employment history a crucial factor for home loan approval. This is because they want to ensure that you have a stable source of income to easily repay the loan. Your employment history should reflect that there is no risk in providing a loan to you, as any backlog here can result in the rejection of your home loan. And even if your loan is approved, you might need to pay a higher rate of interest or profit rate. 

The key here is to demonstrate to the bank that you have a stable employment history as well as a source of income.

Home Loan Pre-Approval in UAE

Down Payment of the Loan

Most home loans in the UAE have a mandatory 20% down payment criteria. If you pay a larger down payment, the bank would be lenient when determining the interest rate for your loan. Paying a larger portion of the property value despite having a poor credit score can also enable you to get a home loan sanctioned. However, you should do this only after considering what is more feasible for you – paying a larger down payment or getting a loan at a lower interest rate. 

Loan Repayment Tenure

Your financial circumstances will usually change over the span of, say, 10 years, making it possible for you to pay off your home loan in the UAE. However, if the situation worsens, your loan repaying capacity could be affected. Banks and other lending institutions, thus, prefer lending home loan for a shorter term so that you are able to repay the loan on time in the near future.

A shorter tenure also enables you to save money as you will have to pay lower interest, and that too only for a few years. However, keep in mind that you would have to pay high-amount monthly payments. 

A great place to start here and develop a balanced approach for repaying your home loan would be an online home loan EMI calculator. Using this tool, you can compute the monthly instalment that you can afford to pay for your home loan in the UAE without straining your finances and other expenses. 

Value of Your Security

Collateral is usually offered against your secured home loan in the UAE, which can lower your payable interest rate. The worth of your collateral helps in estimating how much loan you can borrow. It’s worth noting that you should make sure to pay your loan on time – failing to do so can lead to the confiscation of your collateral by the bank. 

Your Assets 

Financial institutions also look into your liquid assets for the home loan approval in the UAE. They chiefly look into your savings, money market account, and property (other than collateral) that can be easily converted into cash. Your assets serve as a reassurance that you would still be able to pay off your monthly instalments with the help of your liquid assets in case of any adversity like the loss of a job. 

If you don’t have liquid assets, you may be required need to pay a higher rate of interest. 

Key Takeaways

• When processing your house loan, the banks start by looking at your provided documents. So when you complete your application for a home loan in the UAE, make sure that you include all the required documents.
• To get approved for a home loan in the UAE, you must have a respectable credit score. Your past debts, bankruptcies (if any), and debt settlements will all be reflected in your credit score. Your home loan may still be accepted even with a low credit score. However, in such cases, you will be charged a higher interest or profit rate.
• Your prospects of obtaining a home loan are diminished by a larger credit utilisation ratio, which has a negative impact on your credit score. You should try to keep a 30% credit limit or lower to avoid any difficulty in approval due to this.
• A home loan application from a candidate with a debt-to-income ratio of more than 50% will not be approved by the banks in the UAE, as you will mostly be considered a prospective defaulter by the bank. So before you apply for a mortgage loan in the UAE, you should think about paying off the majority of your current bills.
• Banks in the UAE are generally quick to accept your home loan applications if you have a good salary and low out-of-pocket expenses. Your capacity to pay off your monthly instalments is assessed by the bank once it has processed your income in relation to the finance amount.
• When approving your application for a home loan in the UAE, financial institutions also consider your liquid assets, which include your savings, money market account, and any assets besides collateral that can be quickly turned into cash.
• Employment history is another important consideration for house loan approval by UAE banks. They want to make sure you have a reliable source of income so you can repay the loan without difficulty. Your employment history should demonstrate that giving you a loan poses no risk to the bank.