Home Ownership the Islamic Way: Sharia-Compliant Mortgages in the U.S.

As adjustable rate mortgage rates increase, the homeowners who have these mortgages are currently wondering how they will make payments on their home; especially considering the fact that there are more than 130,000 foreclosures in the US at the present time. These rates do cause many sleepless nights, but with this said, these owners do not consider their mortgage payments to be a sin. For many in the Muslim faith, both ARM or fixed rate mortgages would fall into this category and would be considered unacceptable. So not only do believers in the Muslim faith need to be concerned with their mortgage payment, they also need to consider the role that their faith plays in the purchase of their primary residence.  Most expert house buyers across the U.S. would agree that religion should not limit and/or hinder a person’s home ownership options.

By many Muslims in the US, the religion views riba (interest) and gharar (uncertainty) forbidden in the Islam law. Many commercial lending institutions are responding to these growing Muslims creating Sharia compliant mortgages. These will satisfy the Quranic prohibitions which focus on uncertainty and interest rates. LaRiba in CA, and other pioneer lending institutions like Guidance Financial Group in Virginia offer Sharia compliant mortgages in the US. In Chicago Devon Bank offers these mortgages, as does University Bank in Ann Arbor MI.

Various financing mechanisms are used to create these Sharia compliant mortgages for those in the Muslim faith. Murabaha financing allows a lender to buy on behalf of the buyer and sells it to this buyer in addition to a pre-defined profit margin. The defined margin gets rid of the uncertainty involved in mortgages, and the fixed payments gets rid of the interest rates which is illegal with the traditional mortgage. Murabaha allows the buyer to make fixed payments under a fixed rate mortgage.

Another option is the Ijarah-wal-iqtina financing method, similar to rent to own contracts. With these the lender will buy on the home buyer’s behalf who will then buy the property at cost. This will be simultaneously paid with monthly rental payments. Upon full payments of the fixed term the buyer will then be the sole owner of the property which they are financing through this method. Devon Bank in Chicago views this method as being similar to an adjustable rate mortgage which is given to the traditional buyer.

Most Realtors explain to their Muslim clients that they can help you get more money for your house, and quicker, by opening up the pool of potential buyers, by showing potential Muslim buyers, alternative financing options that they may not have known about before.

With Musharaka financing is a rent to own situation but here the lender and buyer are going to become co-owners at the end of all payment terms.  A part of the principle and rent is paid by the buyer and the lender’s share will diminish with each payment being made by the buyer.   A profit and loss system is also built in to this rent to own option, and sanctioning must be secured by Muslim scholars (generally the Sharia supervisory board of America). Other prominent scholars like Sheikh Yusuf Qaradawi can also be used to secure the financing for these mortgages.

With these “Islamic mortgages,” this helps to eliminate the gap between US home owners and Muslim home owners, as over the years has been far fewer than US owners due to the regulations in Muslim law. In states like MI, where there is nearly a 10% population of Muslims, there is still a huge gap, or about 7%, less home owners being part of the Muslim population due to the laws which are in place against traditional mortgages.

Devon Bank and LaRiba’s ability to partner up with enterprises like Freddie Mac which are government sponsored, expands the liquidity of the institutions in question. This allows more mortgages to be offered and more opportunities for Muslims to buy homes. These new options available to Muslims offers a guilt free way of becoming home owners. It allows them to forego putting away hundreds of thousands of dollars prior to being able to buy, and it allows those who were previously purchasing homes and feeling guilty, to avoid this situation with the new mortgage options which are presented to them through a number of lenders in the US.

With this new found sense of peace, and new mortgage options available to Muslims, this is a guarantee that there will be a continually growing market for these mortgage options for Muslim Americans living in the US, who would like to become home owners, rather than continue to rent a property they live in. So, even while the US home owners suffer sleepless nights, the Muslim Americans can now purchase a home, and feel guilt free in doing so.

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