Can I Have Two Residential Mortgages?
The UAE opens before its residents and an overwhelmingly large portion of expatriates living and working here in one of the most vibrant real estate markets in the world; therefore, the attraction to own a property in this country whets the appetite, as the conditions are favorable. The country boasts attractive mortgage rates along with a solid regulatory framework to offer different ways of financing a property purchase. One of the most common queries is whether a person can have two residential mortgages simultaneously. The piece discusses how and under what circumstances one can take up two residential mortgages in the UAE, highlighting two common myths with clear guidance on the same.
Can I Only Have One Residential Mortgage?
Contrary to popular belief, there is a provision for having more than one residential mortgage in the UAE. Many people mistakenly believe they can only have one outstanding mortgage which is their primary residence. Multiple residential mortgages can be had only under certain conditions with real residential purpose needs. However, a strict criterion by lenders in the UAE ensures that these are residences and not investment properties.
Residential Mortgages in the UAE
UAE residential mortgages are products designed to assist people with funding home purchases. Most mortgages have quite cheap interest rates and good terms compared with other loan products, say, for investment properties or buy-to-let schemes. This is credited to the fact that most of the time, the principal residences are not at high risk in comparison to the investment property, since the borrower will most unlikely default on his principal residence. Conditions to be met by the borrower when applying for a much-needed residential mortgage from the bank or lending institution include proof of income, good credit history, and the ability to raise a colossal down payment. Not only that but the property that is going to be purchased should not be meant for rental or investment purposes.
Can You Have More Than One Residential Mortgage?
Yes, you can have more than one residential mortgage in the UAE. However, it is not easier to gain a second residential mortgage as compared to acquiring a residential mortgage deposit. Lenders will shun making several residential mortgages to a person because the interest rates and terms attached to such a mortgage are favorable. To qualify for a second residential mortgage, substantial evidence is required that the second property will also be used as a residence and not as an investment.
Criteria to Get a Second Residential Mortgage
Proof of Residency
In other words, to get a second home mortgage, you would have to show that the second residence would be used as a home. It could be for personal use; for example, it could be a vacation home, or it could be for a family member or relative; for example, it could be a home for aging parents. Lenders look very carefully at this aspect and want to be sure that you are not looking to avail yourself of residential mortgage terms for what is essentially an investment property.
Income and Affordability
Almost similar to your first mortgage, lenders will also have to consider the income and affordability factors regarding the second mortgage. This includes current income, including the debt-to-income ratio, and whether your job is stable. Lenders have to be convinced that you will comfortably cope with the repayment on both of the mortgages without risking default.
Credit History
Your credit history plays a very pivotal role in getting any mortgage, and more so if you seek a second residential mortgage. A good credit score reflects your credibility in finances and depicts before lenders your potential to handle more than one obligation. It will be a bit harder to get a second mortgage if your credit history has some blemishes.
Down Payment
Although the UAE Central Bank has set maximum borrowing values based on a percentage of property value, paying more for your second property may increase your chances of obtaining approval for a second residential mortgage. The lenders can require higher down payments to reduce their risks against second mortgages.
Purpose of the Property
You should clearly define the intention behind the purchase of the second property. If the lender suspects that the purpose is to generate rental income or sell the property as an investment shortly, then the latter may have different and unfavorable types of mortgages. You are supposed to bring a rationale by way of paperwork or explanation as to why the second property is a real residential use case.
Lender considerations and potential challenges
While it’s possible to have two residential mortgages in the UAE, there are challenges and considerations for the same.
Interest Rates
Generally, the interest rates on a residential mortgage are much lower compared to that of investment properties. However, in the case of seeking a second mortgage, a responsible lender is likely more conservative and will charge slightly higher rates, which reflects the greater risk of holding multiple mortgages.
Regulatory Limits
The UAE Central Bank has regulations with a total borrowing limit across all properties. This is determined by the LTV ratio, meaning how much you can borrow against the value of the property. For instance, expatriates are usually allowed to finance up to 75% of the property’s value for the first buy, but this may be reduced for second or further mortgages.
Property Location
Lenders may find it easier to approve a second-charge mortgage where the properties are located in different emirates or even cities. This may serve as evidence that each property serves a different lifestyle; whereby one may be the main place of residence in Dubai and the other a weekend/ holiday home.
Documentation and Evidence
The application for the second residential mortgage is usually more documentation-intensive, with a need to provide further evidence of your intention to occupy the second property as your residence, such as utility bills, proof of residency, or a letter of intent.
Alternatives to a Second Residential Mortgage
If you find it difficult to get a second residential mortgage, here are some alternative ways of financing:
Buy-to-Let Mortgage
If the property is to be utilized as an investment, a buy-to-let mortgage is more appropriate. The rates are bound to be higher, but this mortgage is tailor-made for property-generating rental income.
Personal Loans
For smaller properties or if it’s to finance renovations, a personal loan might do the trick. However personal loans also tend to charge high interest rates and have a shorter repayment period compared to a mortgage.
Home Equity Loan
If you have substantial equity in your first property, you could think about financing with a home equity loan or line of credit for the purchase of your second property. You’ll be able to borrow against the equity in your existing home, quite possibly at a lower interest rate than if you were getting a new mortgage.
Conclusion
Definitely, two residential mortgages within the UAE are feasible but call for proper planning, enough substantial evidence of intent, and requirements that can be very stringent for lenders. In issuing multiple residential mortgages, it departs from other types of loans because of their preferential terms. With careful consideration of the requirements, coupled with a very strong case, you can effectively negotiate the process and secure financing for a second residential property. Does not matter if you need a holiday home or a home for a family member. UAE mortgage market conditions have opportunities for widening the number of listed properties if you meet the needed prerequisites.