6 competitive benefits of partnering with Guidance Residential

Guidance Residential began serving the needs of Muslim-Americans in realizing home ownership in a strictly Riba free way since 2002. Guidance’s approach to make this impossible dream come true for the Muslim communities in the U.S. was rather unique. Often times we enjoy the fruit from a tree but do not realize how many days and nights of tireless works by the planter of the tree went behind the process. There is an inspiring story of determination, commitment, and perseverance behind the creation of Guidance’s Diminishing Musharakah model of home ownership. It is the only Islamic Home Financing model in the United States that is approved by globally renowned Shariah Scholars who also sit in the board of AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), the regulatory benchmark for global Islamic Finance institutions.

The Background

To fulfill the need of home ownership without Riba for Muslims in the Unites States, senior executives of Guidance embarked on a three year, multi-million dollar R&D project to find out ways how the impossible dream can be made possible. With extraordinary level of commitment and determination, the company engaged 18 law firms and 6 of the world’s leading Scholars who are experts in Islamic Legal Jurisprudence and Financial Transactions. They worked together to formulate the most authentic contract that is compliant with both US regulatory framework and Islamic Legal system. The level of details and commitment to authenticity that went in creating Guidance Residential’s Islamic Home Financing model was unprecedented.

Co-ownership

At Guidance, we engage with our customers in a joint ownership agreement, in which both the customer and Guidance own a share of the home equal to the equity they contribute. Over a period of time, customers increase their share through monthly payments. This monthly payment consists of two parts – an amount that goes towards paying out Guidance’s investment on the property and the other amount is paid for using the portion of the home that is owned by Guidance. The former helps in the acquisition of Guidance’s share and the profit for Guidance Residential comes from the latter.

Risk sharing

Risk sharing is a concept that is inherent to Islamic Financial contract. In order to call a contract truly Shariah Compliant, there has to be risk sharing. Risk sharing means to share any possible loss from a financial transaction in a just manner by all contacting parties. Justice is the foundation of Islam, and risk sharing in financial contract is a reflection of that justice.

As part of the co-ownership agreement, Guidance shares the risk with the customer in case the house (property) falls victim to eminent domain, natural calamity or foreclosure. For instance, if the government decides to acquire the property via eminent domain, Guidance will take the loss proportional to its share. This shall also apply when the property is subjected to foreclosures or is destroyed by natural disasters. This way Guidance promises its customers not only a Riba free contract but also a contract that reflects the essence of justice, which is the foundation of Islamic Financial law.

Riba-free

Guidance Residential is a brand that is known for the authenticity of its Islamic home financing program. We understand the aspirations of Muslim-Americans, who wish to purchase their homes according to the teachings of Shariah. When they count on us to offer them a truly Shariah-compliant home financing program, we consider it an honor to help them with their effort. To ensure that our home financing program was created based on Musharakah Mutanaqisah (Declining Balance Co-ownership Program) model of Islamic Mode of financial transaction, which is the most authentic model of Islamic Home Financing within the U.S. regulatory context. In order to maintain strict Shariah Compliance, Guidance engaged six globally renowned Shariah Scholars who are well known for their expertise in Islamic Legal Jurisprudence and Finance and Economics knowledge to formulate the Diminishing Musharakah contract. Unlike many other Islamic home finance providers in the country, Guidance chose to adhere to a strict Shariah Compliance policy that is approved by the independent board of Shariah Scholars. Therefore when our customers purchase or refinance their homes, they are at peace in knowing that with Guidance they don’t have to worry about the authenticity of the contract.

No pre-payment penalty

It so happens that at times, the customers would like to pay the outstanding amount earlier than agreed in the contract. In such a situation, many conventional mortgage providers would levy what is known as a pre-payment penalty. At Guidance, customers are free to completely buy our shares in the property, much ahead of schedule, without having to pay any pre-payment penalty. This also establishes the justice in the Islamic financial contract.

Capped late payment fees

When a customer skips a monthly payment, conventional mortgage lenders charge a compounding late payment fee as penalty. Irrespective of what situation the customer is in, conventional lenders charge this fine. Guidance Residential on the other hand charges a capped late payment fee, which goes towards administering the late payment. This is because levying a compounded fee means the imposition of interest on the customer, which will be wrong on the part of an Islamic financial institution.

Non-recourse commitment

In the event of customers being unable to make payments for a prolonged time, their other assets will not be pursued by Guidance Residential. This we ensure by incorporating a “non-recourse” clause in the contract, which protects the assets of the customer so as to offer some ease during financial distress.