How Much Can I Borrow for My Home Loan?
Understanding how much money you need to purchase a property is only one part of the buying process. While the price of your potential property is important, it is equally important to find out how much money you can count on borrowing from a loan provider to make the purchase. To have a general idea of what to expect from the loan process, it is important to understand how mortgages are generally calculated.
The amount you can expect to borrow for your home loan is dependent on several key factors. Any potential lender who accepts your mortgage application will examine your job history and status, your credit history, the amount of debt you currently owe, your income, and the value of your prospective property. Taking these elements into account, potential lenders will then decide if you are a trustworthy customer and how much money you can afford to repay. Loan applicants who are self-employed will likely need to supply potential lenders with at least two years of financial history to go forward with the application process.
Every lender has different criteria for deciding if and how much to loan a customer. Some may use a multiple of your monthly income, while others may use a multiple of annual income. Some account for bonuses and other forms of extra income, such as commission, while others do not. Different lenders also have unique approaches to interest rates, with some using current interest rates as a standard while others pad the estimated rate to account for potential future increases.
A healthy standard is for your monthly income to exceed your potential mortgage payment by at least four times. While some lenders will make exceptions in light of your specific circumstances, this will not necessarily always be the case. Regardless, it is best to be overly prepared when calculating the financial feasibility of any potential loan repayments. Keep in mind that the UAE Central Bank only allows 25 years at most on the life of a mortgage. If a loan applicant will be 65 (or 70 for those who are self-employed) before the end of a 25-year term, the life of any potential mortgage must be shorter.
As with any major financial decision, talk to a financial adviser before taking a course of action. They can help guide you through the process.