Top 6 Home Loan Tips for First-Time Homebuyers

Buying a new home can be an exciting and fun experience, especially if it's your first time. Yet, finding the right one is only one step in the process. What is more important down the line is selecting the right home loan.

With all the paperwork, weeks of shopping, and tons of precautions to take, you may find yourself overworked.

Here are some tips to help you find the right home loan as smoothly as possible.

1.    Check your eligibility.

In some countries, the first thing to do when you want a home loan is to check your credit score. In fact, having a good credit score puts you in a position to attract the best deal for your home loan. However, in countries where there is no credit score requirement, the criteria are quite different.

To get a home loan in the UAE, for example, you must be at least 21 years old and have a salary of at least AED 12,000 (approximately $3,300) if you are employed. On the other hand, if you are an entrepreneur, you must have a monthly income of around AED 20,000 (approximately $5,500). Of course, there are many other criteria, so check with your bank.

Meeting all the eligibility criteria is like getting an automatic mortgage reduction. Before you start the process of buying a home, it may be a good idea to check whether you tick all the eligibility requirements. Then take steps to improve your eligibility.

2.    Define how much you can borrow

If you want to calculate how much you can afford to pay for a house, you need to consider a few primary elements, such as your household income, monthly debts and the amount of savings available for a down payment.

As a homebuyer, you'll want to have some comfort in understanding your monthly payments.

While your regular monthly debts and household income may be relatively stable, unexpected expenses and unplanned spending can affect your savings.

A good rule of thumb for affordability is to have three months' worth of payments, including your house money and other monthly debts, in reserve. That will allow you to cover your mortgage payment in case something unexpected happens.

3.    Get your financial documents in order.

When you apply for a mortgage, you must provide your lender with several financial documents.

Having these documents already in place will help speed up the processing of your loan application.. At a minimum, you must be prepared to provide your pay-slips and your current bank statements. In the UAE, all your details are captured through your Emirates ID and this makes it much easier for you and the bank from a documentation perspective.

You also need to provide an authorization letter for lending and consent letter for a bureau check and if you run a business,  a copy of your trade license, a copy of your registration, and other business related documents needs to be provided.

4.    Get a mortgage pre-approval.

Many estate agents want you to pre-qualify for a loan before they start working with you.

To be clear, you don't need prior approval to look for houses. But a pre-approval can be a valuable buying tool.

The prequalification process for a mortgage loan is quite simple and usually requires only some financial details such as your income and the amount of your savings and investments.

If you submit a pre-approval letter with your housing offer, the seller knows you are serious. The pre-approval letter shows you are not likely to have problems getting financing.

More importantly, a pre-approval gives you a better idea of how much you can borrow and the range of housing prices you can afford.

5.    Set the amount for a down payment.

The minimum down payment required can vary from15 to 30 per cent of the home purchase price depending on the type of loan you choose and type of property. Establishing a monthly budget will help you set aside enough money for your down payment.

As soon as you have assessed what your budget will allow you to finance, consider having money automatically deposited from your paycheck or bank account into a savings account to make it easier and more convenient to put money aside each month. Talk to your bank about how to do this. If you are an expat, get in touch with the best banks for expats in the UAE and start saving today.

Remember that a higher down payment will reduce your monthly EMI costs.

6.    Shop around for a low rate.

One of the most common mistakes for both first-time and repeat buyers is to accept the first mortgage offered to them.

Not all mortgages are the same. Even if two loans happen to have the same interest rate, there may be differences in fees and charges that make one offer more costly than the other.

A seemingly small mortgage rate difference can save you thousands of dirhams over a 20- to  25-year term.

Now that you know how to increase your chances of getting a home loan, try to apply the tips above and take your chances.

When shopping around for a mortgage, don't just check the international banks. Some of the regional or local banks may offer better rates and unique lending programs, especially for first-time homebuyers.