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Whether to start a business or to meet emergency financial needs, an individual requires a loan. Raising quick and adequate capital through mere savings is impractical in today’s world. Therefore, banks and other financial institutions in UAE offer various types of loans specifically designed for individuals, businesses and corporates. Landlords need funds for repair, maintenance or rehabilitation before leasing their property. When a landlord invests in real estate, he requires the landlord loans (hard money) to leverage his cash flow. The profit margin in real estate investments depends majorly on the initial financing, so acquiring a low-interest, property-oriented loan with better tenure flexibility is important. The following article sheds light on landlord mortgage and its various aspects.
The loans taken against real estate investments for buying and renting are termed landlord mortgages or loans. Real estate investors generate profits through a buy-to-rent strategy that involves renovating a distressed property and renting it to the tenant. While doing so, the landlords need to acquire hard money for property repair and rehabilitation. These loans create a wide profit margin for real estate investment as they ensure lower down payments and lesser interest rates.
Landlord mortgages and conventional mortgages don’t work the same way. The bank provides landlord mortgages to the real estate investors and not to the owner-occupied properties. Also, the purpose of these loans is to cover the buying, repairing and renting costs. The funds granted to the investors are based on the property’s value after renovation instead of its actual value. Thus, it allows you to have maximum leverage for fixing, repairing and renting while still financing the rehab. A landlord mortgage is expensive compared to a normal mortgage for the fact that it pays for properties value after repair, known as ARV (after repair value).
Conventional mortgages, on the other hand, provides funds for purchasing residential or commercial properties for self-use.
Investment properties do provide equities. The real estate investors create a profit margin by renovating and repairing properties and later renting them. Landlord mortgage offers them the flexibility to cover renovation expenses with purchases. With the funds, they can readily purchase, rehabilitate and rent out the investment properties.
Landlord mortgage loans are available to UAE individuals and residents. However, before applying for a landlord mortgage, they will need to satisfy a few criteria. Employed individuals need to work for at least 6 months in the current company before loan application. Similarly, self-employed individuals need to run their business for at least 2 years before applying.
It is an additional benefit for the applicants to have an existing account in the bank they are applying to. The bank already knows your financial situation and you can avail of the landlord loans easily.
Also, some banks may provide loans to customers working in specific companies. Working for the government or an established MNC increases the chances of acquiring a landlord mortgage.
Finally, the bank may consider your credit history for loan approval. It’s better to have a good credit score for ensuring a convenient mortgage approval. A non-existent or low credit score can result in the rejection of your application.
The cost of mortgage rates in the UAE can fluctuate considerably over time depending on the economic situation. The interest rates during the pandemic are likely to soar higher than usual. While applying for a landlord mortgage loan in UAE, individuals need to pay 0.25% of the loan amount for loan registration. The bank may ask for mortgage protection payment insurance and charge you a specific evaluation at its discretion.
As far as the interest rates are concerned, landlord mortgage rates begin at 2.75% for one year, 3.88% and 3.98% for three and five-year tenure, respectively.
The applicants can visit the bank or the lender in person to acquire the landlord mortgage. They can also consult a mortgage broker for the best suggestions as per their financial requirements. Being a new real estate investor, it is better to approach a mortgage loan advisor before a mortgage application. They can help you navigating through fluctuating market rates and bringing the best deals as per your needs.
After ensuring you are eligible for the landlord mortgage, you need to acquire all the necessary documents as mentioned below -
Note: The issuer may ask for additional documents for record and verification at its discretion.
In comparison to the conventional mortgage, a landlord mortgage is more expensive. It’s so because the landlord mortgage covers buying and repairing costs, while the conventional mortgage only covers the actual cost of the property.
Additionally, landlord mortgages are riskier for the lender in the sense that the borrower tends to repay the loan amount with his rental income. The payments can get delayed if the borrower doesn’t receive his rent on time.
Landlord loans are an effective way for the real estate investor and house flippers to gain profit. They can create a better profit margin by conveniently buying a property through the loan and renovating it for rental use. One of the biggest advantages of a landlord mortgage is it covers the repair and fixture cost so that the investment won’t go heavy on the investor’s pockets. However, before applying for a landlord mortgage, an individual must consider the requirements and purpose of the loan application. A landlord mortgage is designed for buying and renting and is expensive in comparison to a conventional mortgage.