TOP TIPS TO ENSURE YOUR MORTGAGE LOAN APPLICATION GETS APPROVED
Samira Kh 
Dubai’s lucrative job market, business-friendly policies and thriving economy make it a prime destination for real estate investment. The government’s investor-friendly policies have led many to buy homes with an eye on future profits. However, buying property via a mortgage loan can have pitfalls. Here are a few tips to avoid getting your mortgage loan application denied.
TOP TIPS TO AVOID GETTING YOUR MORTGAGE LOAN APPLICATION DENIED IN THE UAE
Government policies are generally investor friendly and encourage banks to assist loan seekers. At the same time, there are strict regulations and rules that all parties have to adhere to ensure no one faces any monetary losses.
If you are planning to apply for a mortgage, read on as we answer the question of how to avoid getting your mortgage loan application denied?
CREDIT SCORE
A good credit score is one of the signs your loan will be approved. Banks put a lot of weightage on your credit score when approving your mortgage loan in the UAE. When people ask why would a mortgage loan be denied, often the reason is a low credit score.
If you have a low credit score, you can improve it by paying your bills on time. You can pay off any credit card debt and avoid getting new credit cards. Try to limit your expense via a credit card which you can pay at the end of the month. It is also a good idea to examine your credit report to see if any errors have been made.
Al Etihad Credit Bureau (AECB) issues credit reports and credit scores in Dubai.
DEBT-TO-BURDEN RATIO
Banks prepare an affordability report to measure if you will be able to meet your monthly mortgage obligations. The idea is to check if you will be able to continue paying even if your current circumstances change. Generally, banks use different formulas to calculate this, however, the basic idea is to take 50% from your salary and deduct your monthly expense. In case there is no money left, it is one of the signs your mortgage will be denied as your debt ratio is too high.
The solution is to wait till your debt ratio improves to apply for a mortgage. If half of your salary covers your monthly expense, it is one of the signs your loan will be approved.
LOAN-TO-VALUE (LTV) RATIO
Loan-to-value ratio (LTV) is one of the factors that banks used to determine your eligibility. It compares the amount being requested to the value of the interested property. The requested amount is divided by the appraised value of the property to determine the LTV ratio.
Lenders prefer to opt for mortgages which have low LTV ratios. This safeguards their investment in case the applicant fails to repay the instalments. Generally, private mortgage insurance is typically required for loans with an LTV ratio of more than 80%. This insurance amount has to be paid with your monthly mortgage payment.
STRESS TEST
Interest rates are not fixed and can go up during the duration of your mortgage. Lenders run a stress test to confirm if you would be able to continue your payments in case of interest rate increases. Different lenders use their own standards to check affordability.
AVOIDING MISREPRESENTATION
One of the most important tips to avoid getting your mortgage loan application denied is being truthful and accurate in your application. Banks have a process for verification and due diligence.
Mortgage application denied is not a desirable outcome. If any information is found to be inaccurate or false, the likely result would be a denial.
AGE LIMIT
One of the requirements for acquiring a mortgage in Dubai is related to age. One must be at least 21 years old to apply for one. Whereas, the upper limit is 70 for UAE nationals and 65 for UAE residents.
NATIONALITY
Nationality is one of the answers to the question of why would a mortgage loan be denied. There are some countries that are sanctioned and it is improbable that UAE banks will offer mortgages to passport holders of these countries. This list of countries is subject to change and is not the same for different banks.
EMPLOYMENT HISTORY
Your employment history is also a factor in the bank’s decision. If you change jobs frequently with periods of unemployment, it will reflect negatively on your application. Continuous three year employment is considered to be the prerequisite for acquiring a mortgage. So, one of the tips to avoid getting your mortgage loan application denied is to ensure you have had a sustained period of employment prior to your application.
The bank will also look at the stability of the company you are working for. Company reputation also plays a part in the final decision.
BEING A GUARANTOR TO A LOAN DEFAULTER
If you have been a guarantor to a loan defaulter previously, this is one of the signs your mortgage will be denied. So, be really careful in deciding who you would provide a guarantee for. It impacts your credit score as well as chances of getting a mortgage.
FAQS ABOUT TIPS TO AVOID GETTING YOUR MORTGAGE LOAN APPLICATION DENIED
WILL I LOSE MY DEPOSIT IF I AM DENIED A MORTGAGE?
This depends on the contract you sign with the agent and seller. Make sure you are clear on the terms at the time of signing.
WHAT TO DO IF YOUR MORTGAGE APPLICATION IS DENIED?
The answer to this question depends upon the reasons your mortgage was denied. For instance, you can work on improving your credit score or LTV. Moreover, you can also seek a different mortgage programme or a different lender.
WHAT ARE THE DIFFERENT TYPES OF MORTGAGES AVAILABLE IN DUBAI?
Check out our list of the types of mortgages in Dubai to get a basic understanding.
BUYING A PROPERTY – CASH VS MORTGAGE, WHICH IS BETTER?
Read our explainer, which outlines the pros and cons of mortgages vs cash purchase.
These are our basic tips to avoid getting your mortgage loan application denied. Getting a mortgage loan needs a fair bit of work. You can start your process by reading our guide on how to get a mortgage in Dubai. You can always get assistance from loan officers to help you through the process.
