The first and foremost thing to be noted when buying a house would be the purchase cost, i.e. the property value. Be it a ready property or under-construction one, homebuyers must prepare a significant amount to make the purchase. Banks or financial institutions offer a mortgage loan for both under-construction and ready properties. In such a case, the buyer must accumulate funds for the down payment. If the homebuyer is planning to purchase without any financial assistance, then it is a totally different scenario.
A ready-to-move-in house is where the buyer can immediately occupy the property after purchasing it. The buyer must have an approximate value in mind and plan according to accumulate funds for the purchase. Once a significant amount is accumulated and the desired property is found, the parties can sign the deal and complete the purchase.
Usually, the value of a ready-to-move-in property depends on the demand-and-supply situation in the market. If the supply is positive, then the price of the property can be affordable for a buyer. In such cases, it would be more profitable for the buyer. The buyer can pay an advance to lock in the price of the property and finish the purchase once the loan is disbursed.
When purchasing a ready property, a buyer pays a lump-sum amount to the seller. The buyer needs to prepare for the down payment, loan amount, property registration costs, loan processing fees and a few other additional expenses. These expenses need to be cleared in one go.
Along with setting a property value and saving for a down payment, buyers must keep their debt burden ratio (DBR) nominal with a good credit score. If the DBR is high and the credit score of the loan applicant is bad, then UAE banks won’t approve the loan. When the down payment funds and the preferred house are set, but the mortgage loan gets rejected, it can be a difficult situation for the buyer to complete the purchase.
Down payment and additional costs
The down payment would be a minimum 25-30 per cent of the property value. Assuming a property worth Dh1 million, then the buyer must save at least Dh250,000-Dh300,000 for the down payment. Additional pre-purchase costs such as loan processing fees, mortgage registration fees, registration fees and Land Department fees can reach around 10 per cent of the property value, which means an additional Dh100,000 is needed upfront. So overall the buyer must be prepared with around Dh350,000-Dh400,000 to make the purchase.
One of the primary components that make a ready property differ from an under-construction one would be the equated monthly installments (EMI). The EMI of the mortgage loan is calculated right after the loan amount is disbursed. Whereas, in the case of an under-construction property, you can opt for a loan in which the calculation of EMI will begin after construction is completed.
Purchasing a ready property definitely requires a certain level of prior planning in terms of finances. If prepared financially with a low DBR and good credit history, it is easier for a buyer to get home mortgage pre-approval and find a ready-to-move-in house. But if one has to take out the retirement savings or emergency funds for the down payment and other expenses, then the buyer must ensure to put back the used amount at the earliest.
Nikhil Rastogi is co-founder of mymoneysouq.com.