Are you looking for a mortgage for your dream house? Have you thought about the minimum down payment you would be required to make? According to UAE Central Bank regulations, expatriates mortgage borrowers are required to put a 25% down payment for properties under AED 5 million and 35% for properties worth over AED 5 million. On the other hand, the down payment requirement for Emiratis is 20% for properties under AED 5 million and 30% for properties above AED 5 million. For second and subsequent properties the minimum deposit required is 40% for expats and 35% for Emiratis. A larger deposit also means that your lender is likely to charge you a lower rate of interest which translates into a lower debt burden. Below are a few tips to help you build your down payment.
Start a savings plan
Starting a savings plan may sound old fashioned and time consuming, but it sure can help you set aside cash for a down payment. There are plenty of options of building your savings by means of either a savings account, fixed deposit, savings schemes or long term investments. While the returns on these may not be huge, it’s still better to keep cash away so that you don’t end up using it. The National Bonds savings schemes in the UAE are also an alternative worth considering.
While you aim to reach your saving goals, consider reducing your expenses as well. Monitor your spending and make cutbacks wherever required. Stick to your budget and transfer any additional savings to your savings account.
Pay off your debt
Your ability to save is compromised when you have debt piling up. If you have more than one debt in the form of loans, it is a good idea to rank your debt in order of the highest to lowest interest rate and work on paying off the ones with the highest rates sooner. Get rid of those credit cards lying in your wallet, draining more of your money each month with accumulating interest charges. Cut the debt load and build cash for your down payment.
Sell your old house
If you’re planning to sell your old house, use proceeds from the sale towards the down payment of your new house. When you sell your home before buying a new one, not only do you get a clear picture of how much money you have in hand, but it’s easier to get a new mortgage after you have got rid of the previous one.
Some of your down payment cash could be sitting right in front of you in the form of existing assets or property, whether in the UAE or elsewhere.
Borrow from family
Get help from parents or other people you trust. Borrowing money from family can be a good idea when there is no other way out. Not only will you get the required funds, but also save by paying low or no interest along with flexibility in repayments. Although, it might be hard to find the right people with the exact amount of money you need, but its definitely worth a try.
If you are not able to raise your down payment by any means, consider rent-to-own programs. Under these programs, there is an agreement between the buyer and seller, wherein the tenant has an option to buy the property after he has rented it for a certain period of time (two to three years). The tenant has the option to purchase at a fixed price, and his paid rent is counted towards the purchase. There would be no penalty, if the tenant does not wish to buy the property at the end of the term. This process reduces the burden of putting down a hefty down-payment.