First Time Homebuyers Guide to Islamic Home Financing

house sitting on stack of dollar bills

If you are a first time home buyer and want to purchase your new home in a halal way, you will want to learn all you can about the process. You may have already made a few key decisions: where you want to buy your home or what type of home you are looking for. What you may need more guidance on is how to apply for financing. Here are few tips that can help you navigate the process and reach your goal:

  1. Educate yourself: In order to select your options for Shariah-compliant home financing, you need to know what Islamic home financing is and how it works, what the differences are between a truly Shariah-compliant home financing product vs. a conventional mortgage. It is also important to learn the other types of home financing options so you can compare and contrast.  Here are few resources that can help you understand both Islamic home financing in general and Guidance Residential’s Declining Balance Co-Ownership Program:
    1. How It Works: Declining Balance Co-Ownership Program
    2. Unique Benefits of the Program
    3. Shariah Compliant Vs. Conventional Mortgage
    4. Fatawa
    5. Independent Shariah Board
  2. Pre-Qualify: Pre-qualification, and knowing what you can comfortably afford, is the step that gives you an estimate for the amount of financing you can obtain from your Islamic Home Financing provider. During pre-qualification you provide the financier with basic information about you and your finances so that the company can calculate and provide you with the maximum amount of funding you may be qualified for. Pre-qualification also gives you an idea about how much your monthly payment will be according to your qualification result. Knowing these figures in advance will help you narrow down your home search results and expedite your decision making process. Getting pre-qualified is simple and can be done online within few minutes with Guidance Residential’s online pre-qualification tool.

 

  1. Make an offer: When you see a home for sale in the location you are looking to purchase, you will probably be competing against other home buyers also interested in the same property. Sellers give priority to home buyers who are committed. One way that sellers gauge your commitment is whether you have been already pre-approved by a financier. Pre-approval is different than pre-qualification. During pre-qualification you provide information to estimate how much you can borrow or afford to finance without providing specific documents to the financier to support your information. During pre-approval, the financer asks for your income, expense and related documents to verify your financial information and determine exactly how much fund they will be willing to offer you as a financier of your home. When you choose your Islamic home financier, contact them and get pre-approval in order to present yourself as a committed buyer. While this step is not necessary, pre-approval speeds up the underwriting process and gives competitive advantage to home buyers. Once you are pre-approved, your home purchase offer to the seller becomes stronger.

 

  1. Apply for Islamic home financing: Once you have finalized the home you want to buy and are ready to apply for funding, it’s time for the application process. In this stage, you contact the Islamic home finance company and submit an application with required documentation. Throughout this stage, a sales associate will be working with you and asking for additional documentation if necessary. They will walk you through the process. When you apply with Guidance Residential, we generally uses the following main criteria for assessing your application:
    1. Income
    2. Current debts and credit history
    3. Assets and available funds
    4. The value of the property

 

In order to complete your application, you should be prepared to provide the following documentations in a timely manner:

  • W‐2s (for the last 2 years)
  • Recent pay stubs (two most recent consecutive)
  • Bank statements for all financial accounts, including investments (for the last 2 months, all pages)
  • Signed personal and business tax returns (all pages and relevant schedules)
  • If self‐employed, a copy of most recent quarterly or year‐to‐date profit/loss statement
  • A copy of the signed Purchase and Sales Agreement

If you are applying with a co-borrower, such as your spouse you will also need to provide the same documents for them. The company may require more documents, depending on your circumstances and depending on the type of home financing for which you are applying. Upon verification and approval of your application, the account executive will inform you of the next steps.

Get started with your home buying experience with online pre-qualification, it takes only a few minutes: https://www.guidanceresidential.com/prequalify.

Buying your first home with the help of an Islamic home finance provider such as Guidance Residential does not need to be a daunting process if you educate yourself. You are not alone.  Our professionals deal with new homebuyers on a daily basis.  They understand that it can be overwhelming but are available to help guide you on your path to home ownership.