Buying a property – cash vs mortgage, what is better?

• Advantages of Buying Property in Cash
• Benefits of Getting Mortgage
• Cash vs Mortgage
• FAQs

A property is an investment – an asset that saves you a great deal of rent if you live in it and earns you good returns if you choose to rent it out. When it comes to buying property in Dubai and the UAE, you can either pay for it in cash or apply for a mortgage. Which of the two options is better? Let’s find out with our analysis of buying a property in cash vs mortgage.

BUYING A PROPERTY IN CASH VS MORTGAGE

There are multiple factors that should be taken into account when deciding to buy property in cash or through a mortgage. Both mortgage and cash purchases have their advantages and drawbacks. It all depends on your individual preferences, financial situation, and your purpose for buying property in Dubai or anywhere else in the UAE.

Let’s look at the difference between buying property in cash vs mortgage so you can make an informed decision based on your specific circumstances.

ADVANTAGES OF BUYING A HOUSE WITH CASH

We begin with the advantages of buying a house with cash, which unsurprisingly, also double as the disadvantages to buying a house utilising a mortgage.

SAVINGS

There’s no getting away from it, mortgages are expensive. As opposed to buying a house in cash, a mortgage purchase involves a lot of additional costs – interest being the most significant one. At the end of a home loan tenure, chances are you would end up paying a lot more than the original price of the property.

Then there are also bank fees, processing fees and closing costs that you should take into account. An all-cash transaction ensures you swerve from these additional payments, making it much easier on your pockets in the long run.

THE ABILITY TO NEGOTIATE

One of the biggest disadvantages of buying a house with a mortgage is that you lose the power to negotiate. Cash buyers have better chances of negotiating a real estate deal because they know their budget and can bargain for a preferable price.

On evaluating buying a house in cash vs mortgage, you will need to qualify if you decide to go with the latter option. This requires documentation aplenty and whole lot of other red tape to wearily wade through. Even then, there is no guarantee that you’ll secure the mortgage for the applied amount. A cash transaction will see you wave goodbye to these irritants before they even begin.

LESS TIME CONSUMING

Properties purchased with cash involve direct transactions either with the seller or the real estate agent. There are no long processes or third parties involved.

When you choose to get a mortgage, the process becomes a lot more tedious. There are bank formalities, approvals and other issues that extend the timeline of your home purchase transaction. Buying a home with cash and avoiding common home-buying mistakes save you both time and money.

ADVANTAGES TO BUYING A HOUSE WITH MORTGAGE

The advantages of buying a house with a mortgage can also be counted as the disadvantages to buying a house with cash. Let’s take a look.

GREATER FLEXIBILITY

There are many different kinds of types of mortgages in Dubai and the rest of the UAE. Each of these home loans come with different payment plans and interest calculations. So, when you decide to buy a property on mortgage and not cash, you have some flexibility to opt for the tenure and fixed instalments that work best for you.

In a buying a property in cash vs mortgage comparison, cash purchases do not give you that flexibility. You either have the amount to make the purchase or you don’t. Even if you do have the whole amount saved up, it’s a significant outlay gone in one fell swoop, possibly leaving the individual cash-strapped for other expenses and/or investments.

If you want to learn more about the process of getting mortgage in Dubai, our guide has all the necessary details.

EASY TO MANAGE

Another thing you need to consider when weighing buying a property in mortgage vs cash options is that saving up a lump sum for an all-cash purchase is not easy. It may take years of saving to accumulate the amount, which may not even be sufficient should the property value increase over time. If you have the minimum salary for a home loan in Dubai, this process may be easier to accommodate.

This is one of the reasons why a lot of expats get mortgages in Dubai to finance their property purchases. This allows them to buy the property on a home loan in Dubai, with easy-to-manage instalments. In some cases, should the owner choose to rent out the property, the received rental amounts will be in excess of the monthly mortgage repayments.

GREATER LIQUIDITY

The biggest disadvantage to buying a house with cash is that it ties you up financially. With all your cash savings invested in a property, you may not have the financial ease to cater to other money-related issues.

It could be anything – an emergency, an urgent travel plan, or a stellar real estate deal that needs a down payment. Buying a house on a mortgage saves you from those potentially damaging scenarios. You get the property without compromising on your financial liquidity.

IS IT BETTER TO BUY A HOUSE IN CASH OR MORTGAGE?

The answer to this question is complicated and multi-layered. There isn’t one right answer. When weighing the pros and cons of buying property in cash vs mortgage, a lot depends on your individual situation and preferences. You need to consider a lot of different factors before reaching a decision, including your:

• Reasons for purchasing property
• Type of employment
• Age
• Finances
• Future plans

For example, a young person with a stable job who wants to purchase a house in Dubai and settle down in it should consider a mortgage as the better option. It would allow them a longer payback tenure where they can own a home without being hard-pressed for cash.

Alternatively, a middle-aged real estate investor would rather buy property in cash to maintain maximum bargaining power and a quick turnover on investments. A cash purchase also ensures better returns than renting or selling a mortgaged property.

To answer your question, can I sell a mortgaged property in Dubai, our guide contains all the necessary details.

Essentially, whether to buy property through mortgage or cash is a decision that should be made based on what is financially favourable for the individual at that stage in their lives.

FREQUENTLY ASKED QUESTIONS

IS IT ILLEGAL TO BUY A HOUSE WITH CASH IN THE UAE?

No, it is perfectly legal to buy a house in Abu Dhabi, Dubai or anywhere in the UAE with cash.

IS IT BETTER TO RENT OR BUY A HOME IN THE UAE?

When deciding whether to buy or rent a home in the UAE, it pays to educate yourself on market condition, interest rates and an estimated cost of buying a property in Dubai.

CAN FOREIGNERS BUY PROPERTY IN THE UAE?

Foreigners can buy property in Dubai – it doesn’t matter whether you’re a resident or non-resident. However, there are certain rules to buy property in the UAE for foreigners that must be taken into account.

HOW MUCH MONEY SHOULD I SAVE TO BUY A HOUSE IN UAE?

Property prices in the UAE vary for different emirates and the type of property you’re interested in. Cash buyers need to know that even within the same emirate, the price of buying a house or apartment can fluctuate greatly depending on the area of interest.

The table below gives you an idea of the minimum amount you should save to buy an apartment or house in five of the emirates, based on the current listings on Bayut:

And with that, we wrap up this analysis of buying a property in cash vs mortgage. Remember that the property buying process may differ from one emirate to another. For example, here’s how to purchase property in Dubai.

Thinking of making a real estate purchase in Dubai? Familiarise yourself with the pros and cons of buying property in Dubai.