The Difference between Conventional Mortgage and Islamic Mortgage


The primary difference between an Islamic mortgage offered through Guidance Residential and a conventional mortgage is the debtor and creditor loan arrangement.

According to Islamic legal jurisprudence, lending money to profit from any commercial or investment activity including the financing of real estate is not an acceptable method of commerce. The home financing program that Guidance Residential created is based on an Islamic financial concept known as “Musharakah Mutanaqisa” or “Diminishing Partnership.” In this method, the relationship between Guidance Residential and the home owner is that of a partnership rather than a borrower-lender.  Conventional home loan providers do not share the risk of natural disasters, eminent domain or foreclosure. Through this type of financing, the home buyer bears the brunt if any of these misfortunes occur.

Islamic financing has evolved to become an option that is competitively compared to conventional home financing. The good news, is that it’s an affordable option for those who wish to achieve homeownership without compromising their beliefs.

There was a time when faith conscious Muslim American families did not have a sound alternative to a conventional home mortgage that was compliant with both U.S. and Islamic legal systems. The visionaries of Guidance Residential wanted to change that. In 1999 the company embarked on a multi-million dollar research and development project involving eighteen law firms and six of the world’s leading Shariah scholars to provide an authentic model of Islamic mortgage for Muslim American consumers. The Declining Balance Co-ownership Program was developed – and in 2002, Guidance Residential began operation in three states. A new era in the home buying and refinancing experience for Muslim Americans began.

Sixteen years later and operating in over 30 states around the country, positioned in seven newly expanded regions, and continuously growing, Guidance Residential is and remains the #1 Islamic Home Finance Provider® in the United States.