Getting a mortgage is never an easy process. For Muslim home buyers, they face additional obstacles in the homeownership process. Sharia (Islamic law) prohibits all forms of interest. Traditionally, Muslim home buyers pay for a home with large amounts of cash or rent the home indefinitely. However, there are several Islamic-friendly lending organizations and programs assisting Muslim home buyers through the homeownership process.
Mortgage Plans for Muslim home buyers:
- Ijara CDC (Ijara Community Development Corporation) tackles this issue by creating a trust for each customer. This trust is funded by an investor, who purchases the house. The property belongs to the trust. The investor/buyer will rent-own the property with the customer. As the customer pays rent, they will build their ownership on the home. This option is more expensive due to more paperwork and higher rates.
- Some organizations also offer another interest-free financing called murabahah (cost plus). In this type of financing, the bank purchases the property and then resells it to the buyer for a fixed profit. By paying the bank in installments, the bank will register the property in the buyer’s name. Both parties must agree on the contract. The contract keeps costs fixed and does not permit penalties. Under this practice, banks demand high down payments and strict standards to protect themselves from default.
- Another mortgage option for home ownership is by banks buying the customer’s property at its current market value. The customer must buy the home back at the same price. Furthermore, the bank receives consistent monthly repayments to pay off a conventional interest-based mortgage.