Buying a house is often a dream for many. It is the result of many years of hard work and countless instances of foregoing a vacation or a dinner or something nice, just so you can put away some more dirhams and get closer to buying that dream home.
However, in many cases, buyers still need to get home financing from banks —especially if the property prices are low and they don’t have enough savings. Moreover, for people who want to buy a home, but are unable to keep track of their money or put it aside each month, a home loan offers a “forced saving” as the money is often deducted directly as soon as your salary is transferred to your bank account, not giving you a choice to spend it on other things.
Home financing is now a competitive market for banks in the UAE, and all the retail banks that are licensed here offer home financing in some form or the other. One of the most critical elements that banks use to decide who is eligible for which product is credit history. The UAE has established the Al Etihad Credit Bureau, which keeps track of every single client in the banking space.
In this article, we will discuss what kind of behaviour will make you — the buyer of the home — most attractive to these banks, so that you will get the best terms on the best products. This will then give you the choice of which banks to choose from. These are not in any order of priority, but ordered for good readability.
1. Give up all unwanted credit cards.
You credit report takes into account both the credit card limits that are given to you, as well as utilisation. So if you have four credit cards, but use only one, then the three cards that you are not using are impacting your credit report. If you are planning to avail a loan, return all credit cards that are not being used. An alternative to this is to go to the banks that issued the credit card to you and ask them to reduce the credit limit on the credit cards. If there is a card that you use only for dining at restaurants because of discounts, then maybe you can reduce the credit limit to just what is needed to eat out in a month.
2. Avoid taking any new loans.
If you are serious about buying your dream home, then avoid taking any auto loans one to one and a half years prior to buying your house. Now is not the time for a car you cannot afford, as this will fast make you look like an unattractive mortgage customer to banks. Same goes for personal loans — see if you can put off that expensive vacation or personal spend.
3. Avoid switching jobs too often, although this may really not be in your control.
Banks do not like loan customers who change jobs every six months or one year. They like stable employees with stable salary cash flows coming monthly in the bank account. Of course, I am by no means suggesting that you don’t take up that dream job or a salary hike, but avoid moving around jobs just because you can.
4. If you are lucky enough to have a working spouse, then transfer all savings into one bank account.
You can evidence this bank account on your loan application — this makes it clear to the bank that is giving you the loan that you have enough savings and have prudent saving behaviour.
5. Always pay your loans, cards and bills ahead of time.
The Credit Bureau tracks how prompt you are at paying on time. The best way to do this is to schedule auto deductions from your bank account, not on the day the payment is due, but two days after your salary comes in. You should still remember to check your statements to identify any wrong billing — but this can be done even after you have paid as the company is supposed to reverse any wrongly billed charges.
If you have credit cards that aren’t getting fully paid off each month, or you often apply for new cards to do balance transfers, then maybe have a rethink of how soon you want to buy this house. It is not a good idea to take on more loans when you are already so much in debt — especially with the very strict local laws.
6. This one is not for everyone: think about any of your savings in your home country and whether you want to use it to help buy your dream home.
Again, this is not suitable for everyone and depends on your plans in the UAE, financial security for your retirement, any financing obligations in your home country (elderly parents, children’s education etc.), but if you do it, it has the impact of increasing the savings that you can show within the UAE. It is best to discuss this with a financial advisor.
7. If you are saving money each month, see if you can put it away in some kind of deposit scheme offered by a bank.
You can even do one-month deposits that are renewed every month. Doing so signals to the banks that you are a prudent and responsible customer and likely to pay back the loan on time.
The above are the magic seven that if practiced well will ensure that the banks with the best mortgage products will compete to give you the loan.
Akanksha Chirania is a banking expert with a background in risk management and financial innovation. The views expressed here are her own.
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