Home Financing for Muslims

Interest in Islam

In Islamic banking or finance, riba refers to interest charged on deposits or loans. Religious practice forbids riba, regardless of how low the interest rate is. Islam vehemently prohibits interest due to the following reasons:

• Riba leads to excessive leverage in business which may cause business failure.
• Riba often tends to exploit borrowers. This conflicts with the spirit of brotherhood in Islam.
• Riba-based loans exploit the poor and further increases poverty.
• Refinancing riba-based loans often puts the borrower through undue hardship.

The Holy Qur'an says:

"O you who believe, do not eat up the amounts acquired through ribā (interest), doubled and multiplied. Fear Allah, so that you may be successful." [Al-Imran: 130]

"Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch. That is because they have said: 'Sale is but like riba.', while Allah has permitted sale, and prohibited riba." [Al-Baqarah: 275]



"Allah destroys riba and nourishes charities, and Allah does not like any sinful disbeliever." [Al-Baqarah: 276]

From the above verses from the Holy Qur'an, it can be understood that riba is a heinous sin.

What is a Halal Home Purchase Plan?

A halal home purchase plan is a home financing plan that's designed to help the halal-conscious consumer purchase property without taking out a loan or paying monthly interests.

What are the Benefits of Halal Home Purchase Plans?

Islamic mortgages have become increasingly popular as it's based on the Islamic principle that borrowing and lending money in exchange for interest is prohibited.

Benefits of halal home financing options:

• Riba-Free: Halal home financing options are riba-free - consumers don't need to pay interest on home loans.
• Risk Sharing: The halal home purchase plan operates on the basis of risk-sharing. In case of foreclosure or natural disaster, both the provider and the consumer will bear the risk.
• Personalized and More Convenience: Halal home purchase plans are tailored to the needs of Muslims. With this, Muslims can now get a foot on the home-ownership ladder.
• Regulated by Financial Regulatory Authorities: Islamic mortgages are regulated by the Financial Conduct Authority (FCA) in the UK and the Securities & Exchange Commission (SEC) in the US. They are also available from several providers.

How Does Islamic Mortgage Work?

Islamic mortgages and halal home purchase plans don't involve any form of money borrowing or lending. In this home financing option, the bank or provider will purchase the property on the consumer's behalf and lease it back to the consumer. A repayment plan will be set up so that you can easily pay back the total sum in installments. Even though the provider will still make their money, it will be in line with Islamic injunctions.

Islamic Compliant Mortgage Companies

Below are some Islamic compliant mortgage companies that offer home financing options for the halal-conscious consumer:

Ijara Loans

Ijara Community Development Corporation (IjaraCDC) is a Michigan Non-Profit Corporation offering Islamic home financing options to consumers. The company provides the Ijara-wa-Iqtina (lease and ownership) process, allowing the halal-conscious consumer to create a rent-to-own agreement. The company sets up a Trust which purchases the property and leases it back to the consumer.

What's more, the Trust remains the sole owner of the property and take 100% gain or loss. The consumer pays a percentage of the purchase price each month as rent until they have paid off the purchase price. As they continue making the monthly rent payment, their percentage of ownership of the home increases. Under US banking regulations, Ijara mortgages are legal and comply with the provisions of the Truth in Lending Act.

UIF Corporation

UIF Corporation (UIF) is an American financial service company based in Michigan. The company provides residential and commercial home financing options for devout Muslims and individuals who don't want to pay or receive fixed interests on home loans.

What's more, UIF Corporation offers halal home financing plans to Muslims who will like to purchase a new property or refinance an existing home. The home plans are fully approved by the independent Sharia Board and adhere strictly to Islamic financing principles. The company has been voted #1 Islamic financing institution in the United States five years in a row.

LARIBA

LARIBA is another Islamic mortgage provider that offers riba-free Islamic Sharia-compliant mortgages and home financing options to Muslims across the United States. The company's home financing model is based on the concept of “Declining Participation in Usufruct” (DPU). This involves purchasing the property on behalf of the consumer.

The consumer then pays the property value through monthly installments to the company for over 30 years. The consumer may register the property directly in his or her name. With LARIBA, the halal-conscious consumer can plan adequately and repay their home loans over an extended period of time without worrying about the accrual of interest.

Guidance Residential

Guidance Residential offers a transparent, riba-free, consumer-friendly home financing option for Muslims in compliance with Islam's strict prohibition on riba (usury). The company's home financing model is based on the model of co-ownership. Both Guidance Residential and the consumer will own a percentage of the home as co-owners. The consumer's ownership percentage increases as they continue to make monthly payments.

In addition, Guidance Residential offers consumers the advantage of risk-sharing and no pre-payment penalty. In the case of a foreclosure, natural disaster, or eminent domain, the company shares the risk with the homebuyer. Hence, there is no pre-payment penalty required by the company for consumers who decide to pay ahead of the agreed schedule. Above all, the home financing option is endorsed by Assembly of Muslim Jurists of America (AMJA) and an independent Shariah board.

Conclusion

There you have it! Above are some Islamic mortgage providers and home financing options for Muslims. Although Islamic mortgages tend to have fewer features than conventional mortgages and home loans, halal home purchase plans offer the riba-free, risk-sharing, and added convenience. With Islamic mortgages, Muslims can own homes or purchase a property without having to pay all at once or pay interests on conventional mortgages