If you want to buy real estate in the UAE, you might be thinking how your other loans and credit will affect your application for a mortgage. Lenders will look at your credit background, credit score, and other debts when deciding if you can get a mortgage and how much you can afford to pay for it. In this piece, we’ll talk about how different kinds of credit and loans can affect your mortgage application and what you can do to improve your chances of getting approved.
History of credit and credit score
Your credit history is a record of how you have handled debts like credit cards, loans, energy bills, and phone bills in the past and the present. Based on your credit past, your credit score is a number that shows how creditworthy you are. Lenders look at your credit past and credit score to figure out how reliable and responsible you are as a borrower.
When you apply for a mortgage in the UAE, the lender will check your credit record by getting it from Mortage Market. Your credit report will list all of your current and past credit accounts, as well as any open balances, defaults, late payments, and inquiries. Lenders will also look at your income, expenses, investments, and debts to see if you can pay back the loan.
There are two ways in which your credit background and credit score can affect your application for a mortgage:-
They can tell if you are eligible for a credit or not. If you have a bad credit background or a low credit score, lenders may reject your application or give you less favorable terms and conditions.
They can have an effect on your mortgage’s interest rate and fees. If you have a good credit background or a high credit score, lenders may offer you better interest rates and lower fees.
Before you apply for a mortgage, you should check your credit record and credit score and, if you need to, take steps to improve them. For a small fee, you can get your credit record and credit score from the AECB website. You can also talk to the AECB about any mistakes or wrong information on your report.
Here are some things you can do to improve your credit past and credit score:-
✅Paying your bills and loans on time and in full every month.
✅Keeping your credit utilisation ratio (how much of your available credit you use) below 30%.
✅Avoid asking for too many new credit accounts in a short amount of time.
✅Close any credit accounts you don’t use or don’t need.
✅Check your credit report regularly and fix any mistakes you find.
Credit card debt
In the UAE, credit card debt is one of the most popular types of debt. Credit cards have high interest rates and it’s easy to get into a lot of debt if you don’t use them right. In several ways, having credit card debt can hurt your chances of getting a mortgage:
- Your credit score can go down if you don’t make payments on time, go over your limit, or have a high usage ratio.
- It can make it harder for you to pay if you have a big amount or high monthly payments.
- It can raise your debt-to-income ratio, which is a measure of how much of your income goes toward paying off debts. This is one of the ways that lenders look at your ability to pay back a mortgage.
If you have credit card debt, you should try to spend less and pay off as much as you can before you apply for a mortgage. You should also try to keep your amount of debt to income under 30% and pay more than the minimum each month. You could also move your amount to a card with a lower interest rate or get a personal loan to pay off your debt if that makes sense for you.
People in the UAE also often have personal loans as a form of debt. People usually get personal loans for things like home improvements, schooling, medical bills, travel, or to pay off other debts. In the following ways, your application for a mortgage can be affected by a personal loan:
- They can hurt your credit score if you don’t pay on time or if you don’t pay back the loan.
- They can hurt your ability to pay back the loan if you have a large debt or high monthly payments.
- They can make your debt-to-income ratio go up, which is one of the ways that mortgage lenders judge your ability to pay back a loan.
If you have a personal loan, you need to pay it back on time and in full every month. You should also ask your lender if you can pay back some or all of the loan early without being charged a fee. This can help you pay down your debt and make it easier for you to get a mortgage.
Loans for businesses
If you work for yourself and have taken out a business loan in the name of your company, lenders won’t look at your company’s debts when figuring out if you can afford a mortgage. But they will count 20% of the money your business makes each month as your pay. So, it’s important to keep good financial records for your business and show that you’re making enough and steady money.
But if you have taken out a business loan in your own name or given a personal promise for a business loan, lenders will count it as one of your personal debts and consider it when figuring out if you can afford a mortgage and how much debt you have compared to your income.
If you have a business loan, you should pay it off every month on time and in full. You should also ask your lender if you can pay back some or all of the loan early without being charged a fee. This can help you pay down your debt and make it easier for you to get a mortgage.
Conclusion:- Your other loans and credit can have different effects on your application for a mortgage in the UAE, based on the type, amount, length, and history of the debt. Before you apply for a mortgage, you should check your credit record and credit score and, if needed, take steps to improve them. You should also try to pay off or reduce any debt as much as you can to make a mortgage more affordable and improve your chances of getting accepted.