Home Loan Pre-Approval in UAE

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Pre-approval or in-principle approval is the standing approval that lending banks and finance houses may provide to borrowers for their home loan applications. Having been pre-approved for a home loan, borrowers can rest assured that they will get the required finance amount to finance the property they wish to purchase.

The home loan pre-approval procedure allows the lender to run a detailed check on the borrower’s credit history and creditworthiness. This enables the banks to obtain the required information to the greatest possible extent before sanctioning a 25-year loan with a considerably high amount.

Home loan pre-approval, notably, is beneficial for borrowers as well, as it allows them the bandwidth to find a suitable property to purchase without worrying about financing.

When Should You Seek a Mortgage Pre-Approval?

Mortgage pre-approval letters come with an expiration date, with most lenders setting a validity period of 60 to 90 days for their mortgage pre-approval documents. This period is generally preferred as the candidate’s credit profile is likely to change after 60-90 days in the UAE.

Keeping this in mind, the ideal time to seek home loan pre-approval is when you have seriously started considering purchasing a home. It is smart to apply for a pre-approval for home loans before finalising a home because some sellers require the buyers to show proof of funds or a mortgage pre-approval document to hold the property. Thus, you can opt for getting pre-approved for a home loan first before searching for the property later on. 

Home Loan Pre-Approval Process

The process of obtaining a mortgage pre-approval is simple.

Here are the steps you need to follow for the same:

  • Choose a lender and fill out the home loan application form. You will be required to provide important information concerning personal details, income details, and more. 
  • Submit the application and wait for the bank to run a background check and verification for your application. 
  • Once the application is processed, an executive from the lending finance house or bank will connect with you to share the results. 

Please note that Getting pre-approved for a mortgage loan is more about having a desirable profile than diligently following a long series of steps. Making sure that your borrower profile fits the preferences of the lender is the key to scoring easy pre-approval for home loan applications.

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Possible Home Loan Pre-Approval Verdicts

Once you have submitted your request for a home loan pre-approval, the lender’s answer can be one of 3 plausible things – pre-approved, denied, or pre-approved with conditions. 

Borrowers who get pre-approved for their loan can go ahead and make arrangements to submit a formal application and initiate the disbursal procedure. Denied loan pre-approval applications will come with the reason for rejection from the lender. An application that has been approved with conditions may require some additional documentation to support the case as requested by the lender.

In the third scenario, borrowers can connect with the lender to figure out and negotiate the conditions mentioned in their letter of pre-approval. 

What Happens After Getting Pre-Approved for A Mortgage Loan?

Once you receive pre-approval for your home loan, the valuation and disbursal procedure will begin. The bank will also issue a document of pre-approval for your loan that will contain all the fees and charges associated with the loan. 

The lender sends an agent of their own to evaluate the property and estimate whether it is worth investing in. If the future value of the property does not hold up to the expectations, the bank may ask you to reconsider your choices and pick a new property. If you haven’t already picked anything, you may get up to 90 days to choose another property and inform the bank. 

If the bank finds that the value of your chosen property is lesser than the price you have agreed to pay, you will be asked to renegotiate. In such instances, you may talk to the seller again and agree on a new price or choose a new property. 

Once the valuation has been completed, you will be required to submit a few additional documents such as the title deed of the house, valuation certificate, sale agreement, etc. All that’s left now is to get the loan sanctioned, finalise the purchase of the property, and complete the process.

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Factors that Impact Home Loan Pre-Approval in UAE

Certain factors influence the lender’s decision to pre-approving home loan applications, with the most influential factors from this list given below – 

1. Debt-to-Income Ratio

Your debt to income ratio, a.k.a., debt burden ratio, represents your monthly due debt for the home loan as a percentage of your monthly income. A low debt-to-income ratio means that your income is much higher than the debt you are about to take on. This, in turn, means a lesser risk of repayment defaults and presents you as a promising borrower, which can positively impact mortgage pre-approval drastically. 

A high debt-to-income ratio, on the other hand, will show that the debt amount you wish to get will not be easily repayable in your monthly salary. Hence, this presents you as a potential payment defaulter. While the maximum allowed DBR by lenders in the UAE is 50%, the preferred debt burden ratio is anywhere below 30%. Note that any currently ongoing loan will also be considered by lenders when calculating your debt burden ratio. 

2. Loan-to-Value Ratio

Loan to Value (LTV) ratio is calculated by dividing the loan amount you are seeking by the value of the house, with a low LTV ratio working in the favour of the borrower. There is one tried and tested way to lower your LTV ratio – if you pay a high down payment, the loan amount becomes lesser, which lowers the ratio.

Having a high LTV ratio may lead to unfavourable loan terms. If the value of the property is lower than what you have agreed to pay, the bank may ask you to renegotiate the price of the house. You may also have the option to choose a different property. 

If you haven’t already chosen a property, the lender will send the mortgage pre-approval after considering all other required factors. You can then complete this step later. Keep in mind that you will get a grace period of 60-90 days to choose a property. 

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3. Credit Score

Credit scores play a vital role when it comes to getting loans and credit cards in the UAE. Lenders in the emirates have considerably strict credit Score requirements concerning home loans. The minimum preferred credit score for home loans is generally 710. This means that only ‘high’ or ‘very high’ category scores can set you on the direct road to home loan pre-approval in UAE.

Note: Some lenders may consider lending to individuals with a lower credit score. This, however, usually comes with added conditions from the lender.

4. Income Level

As a rule, having a high monthly or yearly income can help you get pre-approved for your loan quickly. The reasoning is simple here – higher income signifies higher repayment capabilities, making you an attractive prospect for lenders. 

Besides the approval, high income can also allow you to get home loan pre-approvals for higher loan amounts as most lenders offer loan amounts in the form of multiples of the borrowers’ income. The minimum salary required to get a home loan in the UAE is AED 15,000.

5. Employment History

A borrower who has maintained a flawless employment history with no gaps will generally have a high chance of getting pre-approved for home loans. Lenders run proper background checks to ensure that you are capable of holding a permanent job in the UAE or have a well-established business to finance the loan repayment. Most lenders require self-employed individuals to have a business established in the UAE 1 to 3 years ago. 

How to Increase Your Chances of Getting Home Loan Pre-Approval?

As we mentioned previously, home loan pre-approvals are a matter of making your borrower profile more attractive to lenders. With an understanding of the factors that may influence mortgage pre-approval, here is how you can improve the chance of getting one for yourself –

  • Maintain a spotless credit history and a ‘high’ or ‘very high’ credit score. The minimum preferred credit score for most home loans in UAE is 710. Any score below this number can harm your chances of getting your application approved.  
  • Aim for a low debt burden ratio. If increasing your income in the near future is not possible, consider choosing a cheaper property. This is ideal not only for getting pre-approval for mortgage but also for paying off the loan easily. 
  • Maintain stable employment history to show that you have a stable stream of income. It certainly helps if your employer is a well-established private firm or even better if it is a government department. 
  • Ensure proper evaluation of your property to avoid any last-minute hassles. As mentioned, the lender will send personnel of their own to evaluate the property. Finding that the property is not worth the amount you agreed to pay will require you to renegotiate the price or find another property. 
  • If you are unable to find a suitable property, you may consider taking a look at the pre-approved properties of your lender. Most banks and finance houses in the UAE have a list of pre-approved properties that borrowers can purchase. 
  • Pay off your ongoing loans to reduce your debt burden ratio

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How to Apply for Your Home Loan Pre-Approval?

There are two straightforward ways to apply for home loan pre-approval in the UAE – via an insurance aggregator like Policybazaar UAE or the lender’s website/branch. The easiest way to apply for mortgage pre-approval is via policybazaar.ae, our official website.

On policybazaar.ae, you can easily find the best available home loan products, compare them at your convenience, and send applications in seconds. In addition to that, our in-house finance experts can help you first–hand in deciding the right home loan plan for you to increase pre-approval chances. Curated unique solutions for all customers is our priority.

FAQ's

Q1. What are the factors that impact home loan pre-approval?

Ans: Debt burden ratio, credit score, credit history, income, and employment history are some factors that can impact home loan pre-approvals.

Q2. Can I choose my property after getting pre-approved for the home loan?

Ans: Yes, you can choose and finalise the property after getting pre-approval for mortgage loans. Lenders allow 60 to 90 days for the same in the UAE.

Q3. What is the preferred debt burden ratio for home loans in the UAE?

Ans: The preferred DBR for home loans by lenders is below 30%. The maximum allowed DBR is 50% for mortgage loans in the UAE.

Q4. How can I apply for a home loan pre-approval in UAE?

Ans: You simply need to fill out the home loan application form of the bank or finance house you wish to take the loan from to apply for a home loan pre-approval.

Q5. Is there a fee applicable on home loan pre-approval?

Ans: Most banks generally offer free pre-approval for home loans. However, some banks that charge a fee for this service can adjust it with the processing fee or at the time of loan amount disbursal. The fees and charges will differ as per the bank you have chosen.

Q6. What is in-principle approval?

Ans: In-principle approval is another term used for home loan pre-approval.

Q7. Will my debt burden ration increase if I have an active loan currently?

Ans: Yes, your DBR will increase if you have any active loans at the moment. It is advisable to pay off your active loans to improve your chances of getting home loan pre-approvals.

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