|Not the home we bought, but definitely a dream home. Source.|
We recently bought our first home, and we’ve written all about our experience, learnings and tips, and the whole process. However, after finishing the post, I realized it’s almost 2,500 words – so I wrote a shorter one – a summary, if you may – incase you just want to get a gist of it. But if you want to read in detail, scroll two paragraphs down.
After calling several real estate agents and viewing a few apartments, we were told to start applying for the ‘pre-approval’ – as we would be buying the house on a mortgage. We contacted a mortgage consultant who supported us in our mortgage application. The pre-approval requires several documents and is one of the first steps to get started with the mortgage. The bank does an eligibility check on your credit limit, and in case you do not have enough credit, you will be asked to reduce your credit card limit. The pre-approval typically takes a week and is valid for 60 days. Luckily for us, a week after getting the pre-approval, we had decided on which apartment to buy. The real estate agent quickly sent us a contract which both the buyers and sellers must sign. Once this is done, our mortgage consultant informed the bank to apply for the Final Offer Letter (FOL). For the FOL, the bank does one more round of eligibility check and then issues an FOL. At this point, we finally parted with our money and made the down payment (usually 20% of the valuation).
As our property was mortgaged with another bank, the sellers needed to apply for a liability letter, post which our bank settled that liability. The sellers bank then issued the clearance letter and gave the original property documents to our bank. Our bank then set up a meeting with the property registration team which issued the new title deed to us. The whole process took around 4 months, though ideally, it should’ve taken only around 2-3 months. It’s key to have competent mortgage consultants and it’s important to raise flags and escalate issues so things don’t get out of hand. You can read the detailed version here – it’s only 2,500 words long.
Buying a mortgaged house:
As our lease would expire in a couple of months, we decided to look for a new place. We had been living in the same apartment for 4 years and we wanted to move. I shortlisted listings and we decided to check the apartments the coming weekend. Over the course of the week, a friend of ours suggested we also look at buying our own place. This is something we did not consider. Apart from having no experience in real estate, we were also uncertain how long we would be in Dubai. Having said that, in our hearts, we knew we may well land up being in Dubai for the next decade or so.
I looked at apartments on sale and would recommend bayut.com and propertyfinder.ae in UAE. While some listings are duplicated across sites, some listings are exclusive. We had a clear budget – calculated by:
• How much down payment we were willing to put down – typically, down payments are 20% - 25% of the property value as per valuation – and this will depend on how much you have saved
• Above what number are we uncomfortable buying a property – some people know they have 2 million AED to spend, others 500k AED
• We wanted our EMI to be as close to our rent as possible, so we wouldn’t feel the pinch
We also knew the locality we wanted to buy in – and luckily, there were few 2 BHKs in our budget in that locality. We contacted the real estate agent whose number would be listed on the website and set up a visit to these apartments.
Tip – If the real estate agent/mortgage consultant doesn’t revert or takes his/her own sweet time to update you or call you back, look for another agent, or call the company and explicitly state you want another agent/consultant handling your case
We were advised by the real estate agents to apply for the pre-approval (pre-approval for the mortgage) as were planning to take a mortgage. Typically, pre-approvals require a lot of documentation and could take 5-7 working days. For this purpose, we got in touch with a mortgage consultant. Mortgage consultants have experience advising and supporting people like us in getting mortgages. They are appointed by banks, and are client facing. I’m assuming that banks prefer to liaise with mortgage consultants rather than clients directly. One of the real estate agents suggested a mortgage consultant, upon checking their reviews online, we found them to be good, so we went ahead and contacted them.
The mortgage consultant is supposed to play a key role in the whole process, unfortunately, we did not have a good experience. And we did not flag it early enough, or we could have worked with another consultant.
The mortgage consultant sent us 3 mortgage options – pretty standard. We went for the lowest interest option, it seemed simple enough: a base rate % along with the EIBOR rate for the year. At the time, our consultant missed telling us that the lowest interest option is offered by a small bank and could lead to potential delays. Had we known, we may have chosen a different option.
We were asked to submit the following documents: passport copy, Emirates ID and 6 months of salary pay slips, bank statement, salary certificate and credit card statement. As I had recently moved jobs, I was also required to submit my confirmation letter. We were also asked to submit proof of reason for the low credit card score.
A red flag should have been that our mortgage consultant never talked to us about our credit score – which is critical while getting a mortgage. My credit score had been badly impacted – and nobody told me how to circumvent that to get the mortgage.
Tip: You can check your own credit score by downloading the AECB app and paying a nominal fee. You can analyze your score, see if there’s a discrepancy (I found plenty) and calculate your outstanding limit.
Week 3 and 4 nothing happened. The bank we were working with was slow – to say the least. Different departments worked in silos, our mortgage consultant added no value, and of course, Covid meant that the bank was understaffed with people on sick leave.
After 3 weeks of giving our documents, we received our preapproval. Apart from vetting the documents, the bank also did a sanity check on my credit score. Meanwhile, we had seen a couple of apartments. We set our heart on one, but the seller backed out – we learned this the hard way – not to let emotions in. We finally gave an offer on a house we liked; the real estate agent suggested we give it for 2% lesser than the list price. After some back and forth, we finalized the price.
The real estate agent was prompt – quickly sent us an online document called Form F, where in both buyers and sellers need to agree to the contract terms and conditions – fairly standard T&Cs. This was done in an hour, post which we told our mortgage consultant to go ahead and apply for the Final Offer Letter (FOL) with the bank.
We were informed that for the FOL, we needed to pay for a formal valuation of the property. This value will determine how much the bank will loan to us. Our mortgage consultant messed up the address of our property (messed it up twice) which wasted one precious week.
Tip – As we realized on retrospect, each step needs to be done correctly, but unfortunately, there are a lot of different types of people out there, some quite incompetent. So double check each step, cross check the information even if it seems like a futile exercise – with the real estate agent, with the mortgage consultant, don’t be conscious and ask any and all doubts.
The valuation came back with a value that was 90% of the price that we had agreed on with the seller. We were a little upset as this meant that the difference, along with 20% of remaining (the down payment) would have to be footed by us - as opposed to only the down payment that we had initially assumed. To put this in perspective, if the agreed selling price was 100k, and the valuation came back at 100k, we would have to put down 20k (20%). But since the valuation came back at 90%, i.e. 90k, we would have to put down the difference i.e., 10k, + 20% of 90k i.e. 18k = 28k; a lot more than we anticipated to put as down payment. Of course, this meant that our EMI would be reduced.
Once the valuation came in, the bank began processing our FOL, which should ideally take between 3-5 working days.
Week 7, 8
Nothing really happened. The bank had a huge backlog and took two weeks to get to our case.
The bank performed one more round of eligibility analysis on my AECB report before sending us the FOL. This time around, they found an additional liability. A few weeks ago, we had applied for a car loan. This amount showed up during the pre-approval period as well, but the loan wasn’t disbursed yet so it did not affect my credit limit. But this time around, the car loan had got disbursed and this affected my debt to income ratio.
Let’s assume I have 2 EMIs – each of 2k and 1.5k. Then let’s say I have 2 credit cards, each with limits of 10k and 15k. Banks typically take 3% of the total limit as the monthly liability, i.e., 300 AED (3% of first credit card limit of 10k) and 450 AED (3% of second credit card limit of 15k). So finally, all EMIs and monthly credit card liability are added, in this example, 2k + 1.5k + 300 + 450 = 4,250 AED. Next, banks take half your salary (let’s assume my salary is 18k AED), so half is 9k and subtract the two. 9k – 4,250 so 4,750 AED. Banks will be comfortable to give a mortgage as long as the monthly EMI is below the magic number of 4,750 AED. Globally, most banks follow a similar process.
What changed in our case between the pre-approval and final offer letter was that the car loan got disbursed which added an extra EMI to the equation and now our magic number was no longer magical.
After 3 weeks of doing nothing with our AECB report, on the last day, the bank’s point of contact calls me and explains to me that our FOL got rejected; that we must urgently reduce the credit card limit. We ran around on the same day, calling the call centers – sometimes dealing with annoying virtual assistants and finally managed to reduce the credit card limit.
Tip – You do not need to wait for the bank to come back to you on the credit limit. You can sit with your mortgage consultant and work out that magic number yourself.
After raising a concern to both our mortgage consultant and the bank, the bank expeditated our re – FOL – which finally got approved. We went to the bank to sign it – only to realize that some details were not right. Our mortgage consultant had given wrong information to the bank. We had to make a second trip 3 days later, to sign the document – the bank did not change the issue date of the FOL, just corrected the information. FOL’s are valid for 30 days, which meant we already lost 3 days.
Once the FOL was issued, we were finally asked to part with our money (the first time we’ve made a transfer of this magnitude) – we repatriated some money and had some saved locally. We then opened a bank account with this bank and transferred the down payment. This will also be the account from where we would be paying our monthly mortgage payments for a long time to come.
The next step was for the seller to get something called a liability letter from their bank. This document takes 3-5working days – typically.
Tip – Clarify with your bank if you must wait for FOL to be issued before the sellers apply for the liability letter. At times, the two can happen simultaneously; FOL and liability being processed together – saving precious time.
When we received the liability letter, we were so relieved – as promised, within 5 working days. When we sent the liability letter to our bank, they promptly rejected the liability letter stating that the address of the property was missing. A liability letter is a fairly standard document so one would assume banks don’t mess this up.
Tip – Even though it seems so simple, check with your bank if they have any specific detail they would like on the liability letter or any particular format.
After receiving the second liability letter, our banker replied that the plot number is missing. By this time, we had run out of patience. The problem is, a pre-approval is valid for 60 days, FOL for 30 days, and we had a 6-day weekend owing to Eid. By the end of Eid, we would be dangerously close to 60 days and past 30 days. If that happens, we would have to resubmit all our documents. We asked the bank if the plot number was critical information, why did they not tell this to us? We escalated the matter, and it was decided that we could proceed without adding the plot number on the liability letter.
An appointment was set with the seller’s bank and the loan was finally disbursed. This was a one-day job; after the escalation that is. After the disbursal, the sellers bank is supposed to issue a clearance letter – a process that takes up to 15 working days. Within this time, the sellers bank would send the original documents to our bank.
True to their word, on the 14th working day, our bank received the clearance letter and the original property documents from the seller’s bank. We then booked an appointment with the property developer for a NOC (no objection certificate).
On the first day of week 16, all four of us, along with the property developer personnel, signed the documents. By end of the week, we were issued the NOC. We mailed our bank and they set up an appointment for the final property transfer – in which we will finally receive our title deed – like Monopoly, but less colorful.
On the first day of week 17, all four us of us, along with the real estate agent, met for one last time, at the property registration office. This was the day, after 17 weeks, when we would get our title deed. We had to sign a few more documents, wait for our names to officially reflect with the Land Department, and then we would leave, proud homeowners.
While I have included tips in my post, I am also putting together the below, based on my experience.
1. Our main points of contact were the mortgage consultant and the mortgage consultant’s boss – after understanding the incompetence of the former, the banker, the real estate agent and of course, the sellers. Each person had different attitudes to getting their job done – all at their own pace. Each of these players would be getting paid, directly or indirectly, from us – so remember that you are the client. You are paying them, and they are working for you. In the beginning we were so polite, but soon realized that nothing was getting done and decided to be more vocal and direct.
2. Get everything in email, do not trust verbal promises and ask for emails.
3. Be shameless in asking questions, clarify even the little things and there no need to be apologetic. We wanted to visit the property a few times and the first time around, felt odd asking the agent. But over time, we realized that we’re putting in a lot of our hard-earned money and decided to feel less odd asking for perfectly normal requests.
4. Talk to multiple mortgage consultants before settling down with one – you’ll get a feel (gut instinct) of how they are – they can really help, if they are good.
5. Don’t let emotions get the better of you. For all the above-mentioned players (except the sellers), mortgages are a daily job. You are simply a tiny cog in a large wheel – and emotions don’t work in your favor. Logic, e-mails, multiple follow ups, escalations, at times – social media, will all help you. If you lost your temper, get it in control before reaching out to any of the players.
6. Be clear what is required. While documents are quite standard, some banks have specific templates, so it is better to cross check what exactly is required. Case in point, liability letters need to have address of the property, but the seller’s bank messed this up. Had we known, we could have specifically asked for it. Nobody told us, but it’s better to ask.
7. And I believe this must be said, before I close this long 2,500 word post. Take care of your health. Buying a home is very stressful. Go for dinner dates, massages, walks – whatever it takes to not get stress to get to you. You will realize that hierarchy, red tapism and bureaucracy, incompetence, ego will at some point catch up with you, but you would need to wade through it effectively.