Now, Saudi Arabia’s mortgage market is developing very actively, which creates opportunities for both Saudi citizens and expatriates willing to buy property.

More governmental funding, the ability to make various loan structures, and homeownership as part of the Kingdom’s Vision 2030 make mortgages more attainable.

However, the most important question is, how simple is the mortgage for potential homeowners? There is, however, a framework, requirements, and procedures in the complete process from the planning to approval stages, that borrowers need to take note of to ease the process.

This guide explains each part of the mortgage process in Saudi Arabia to help you make your property purchase decision more easily.

Understanding the Saudi Mortgage Market

The mortgage market in Saudi Arabia has also grown due to the Saudi government’s push to increase homeownership among Saudi residents. Moreover, they evidenced that the government policies such as the spread of SRC and other policies and regulations have added to the strengthening of the market.

This remains an important factor to bear in mind when first entering the game because it will help one understand where they stand in relation to mortgages, interest, and the financial players involved.

Islamic Law on Mortgage Financing

Closely related to the above-discussed Islamic banking and finance, the idea of Sharia-compliant mortgages is most prominently discussed in Saudi Arabia. This compliance is not a mere legal imposition but a societal ethos that defines the mortgage sector.  It promotes fairness and transparency, which in turn helps to protect consumers. It also helps to reduce the risk of fraud and unethical practices.

Principles of Sharia-Compliant Mortgages

• Risk Sharing: Sharia-compliant financing is quite different from conventional interest-based financing in that this financing involves the sharing of risks between the financier and the borrower.
• Asset-Backed: These loans are generally secured hence keeping the transaction largely within the sphere of the economic reality.
• No Interest (Riba): Whereas, to earn interest, banks practice other forms of business such as partnership (Mudarabah) and hire purchasing (Ijarah).

Common Sharia-Compliant Mortgage Types

• Murabaha: In this case, the bank acquires the property and turns it on to the borrower at an agreed higher price that reflects the profit desired. They are fixed, which makes them look more like the conventional fixed-rate loan facility.
• Ijarah: This is similar to leasing whereby the bank purchases the property and then takes over the lease for the borrower. The title reverts to the borrower after every lease payment has been made.
• Musharaka: This is a partnership where the bank, depending on the agreement between the bank and borrower, will equally share the cost and or profits or losses of the property.

How To Apply For A Mortgage In Saudi Arabia?

The process of mortgage application in Saudi Arabia has the following procedures: The additional procedures that may affect expatriates are also given below. Here’s a guide to help navigate the process:

1- Assess Employment Stability: Employees of lenders in Saudi Arabia require long-standing job security and predictable income. Some of the self-employed expats, those in small organizations that are not well established may face some difficulty while trying to access the mortgage. Make certain that the employment circumstances are consistent with the requirements provided by those lenders.

2- Save for a Deposit: A large down payment is often needed as a way of beginning the payments for the equipment. If you have used a loan to make the deposit, you may find it a bit cramped when it comes to securing a loan since lenders advocate for funded deposits.

3- Government Approval: To get a mortgage, one has to secure an approval letter from the government before taking the loan. This letter is crucial and which prove you as a qualified person to buy any property in KSA. As an expatriate, you cannot own property for investment purposes but can only own the home you intend to reside in.

4- Choose the Right Mortgage Type: It is important to understand the terminology since all finance that is sourced from a bank must follow Sharia law and the various types of Sharia-compliant mortgage products including Murabaha which is the cost-plus financing and Ijarah which is leasing. Everyone has their own structure and own terms.

5- Explore International and Local Lending Options: Most of these people can obtain a mortgage from foreign or other institutions that specialize in overseas mortgages. But it is also always useful to try to find out more about local banks as the market grows steadily.

6- Prepare Documentation: Ensure we have all the official documents that are usually accompanied by an identification card, source of income, employer’s verification in addition to any other document as may be provided by the lending agency or as required by the government.

7- Application and Processing Fees: Be ready to pay the application and processing fees. Perhaps you should look for other lenders or speak to a mortgage broker in order to make comparisons and learn more about the fee system.

8- Property Insurance: It is recommended to take all-risk or specified perils home insurance policies. This insurance possibly covers a wide array of perils that could possibly damage your property hence giving you the security of your investment.

9- Approval and Finalization: After providing all necessary documents while filling out the mortgage application the bank will review your application. If your file is approved for the next level of development, you move toward the last stage of completion, whereby the mortgage rates/schedules are set, and a final agreement is signed.

Conclusion

The Saudi mortgage industry is gradually improving due to the government’s drive to advance homeownership and mortgage products. Each step is described to enable the buyer to handle the mortgage issue effectively and without any confusion, starting from the choice of the right type of mortgage to the management of payments. Mortgage acquisition is therefore a well-planned and well-coordinated bid for homeownership in Saudi Arabia. If you want to get more information about the mortgage process or want to buy a property in Saudi Arabia and want to run the process smoothly, you can contact sothebysrealty.sa/en.