After the global financial crisis that hit the real estate market in the United States of America and its effects on financing institutions and banks in 2007, the US federal government and lending institutions began to take a number of measures to restructure the lending system and avoid a recurrence of such a crisis again.
1- credit score system
The credit score system was launched in 1989, and its use has been expanded since the global financial crisis, specifically the mortgage crisis. The system evaluates individual borrowers with a score index that ranges from 300 to 850. Determining the degree depends on many data related to the borrower, such as the value of the monthly income, the borrower’s commitment to pay old loans, the types of loans that the borrower has taken advantage of or applied for, and other data.
The credit score is issued according to federal law free of charge to each person once a year, and the citizen has the right to know his credit score again, but with a financial counterpart from accredited credit assessment companies such as TransUnion, Equifax, and Experian. Real estate finance companies in America require that the borrower obtain a high credit score to benefit from their financing services, meaning that it is not less than 600 in most cases, to ensure the borrower’s financial ability, seriousness and commitment.
2- Debt-for-income system
The debt-to-income ratio (debt-to-ratio) is another important indicator that determines the financial ability of a borrower. Many banks and financial institutions now require the debt-to-income ratio of the borrower to determine his eligibility and creditworthiness. The debt-to-income ratio is determined by summing up the total amount of obligations to be paid to creditors per month, for example, for example, an American citizen pays $1,500 per month to pay off a mortgage, $400 for a car loan, and $100 for a credit card, the total is $2,000. After determining the total monthly obligations, it is divided by the value of the net monthly income.
Returning to our example, if we assume that the citizen’s monthly income is $6000, then the debt-to-income ratio will be 33%, determined after dividing 2000 by 6000. Mortgage finance companies require that the debt-to-income ratio of borrowers does not exceed 43% to ensure that they are financially able to pay the financial amounts imposed on them monthly.
3- The Gulf is in the footsteps of America
The real estate market in the Gulf countries is now following the same path as the American real estate market in an attempt to legalize lending operations and work to reduce the risks of real estate financing. The real estate market in the Gulf, like many other global markets, was greatly affected by the global financial crisis, as real estate prices halved in some areas.
Some Gulf countries have issued laws regulating the real estate financing process, such as the law on the minimum first payment of real estate loans in Saudi Arabia, which stipulated that the value of the first payment should not be less than 30% of the value of the loan. The UAE has also imposed a law setting the minimum down payment, in addition to a number of other laws that develop the real estate development process and the real estate agency profession.