[ANSWERED] What is a Riba-Free or Islamic Mortgage?

riba free homeownership

One of the challenges facing young American Muslim couples is fulfilling the dream of home ownership without having to resort to riba-based conventional financing. The Qur’an expressly prohibits riba (usury): “O you who believe! Do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful.” (Qur’an 3:130) What’s a potential homebuyer to do? Instead of renting, many turn to Guidance Residential, the largest national provider of Islamic Home Financing.

Unlike conventional mortgages, Islamic mortgages do not charge interest – making money on the exchange of money. Rather, they structure a transaction that allows the Investor to make a profit within the allowable limits of Islamic Law and allow homebuyers to enjoy the full benefits of home ownership offered by conventional mortgages. Guidance Residential’s home financing program is called the Declining Balance Co-Ownership program which is modeled off of the concept of Diminishing Musharakah. In this model, Guidance and the homebuyer engage in a joint ownership venture with the home being the investment. When a homebuyer makes his or her monthly payments to Guidance, they are not paying back interest on a loan as they would do with a conventional home loan. Instead, they are buying their shares of the ownership interest until they retain full ownership of the home. As the sole inhabitant of the property, the homebuyer pays Guidance a profit fee for utilizing Guidance’s share in the property. One of the key distinctions is that the profit is made off an Asset, not off of money secured by an Asset.

With an Islamic Mortgage, homebuyers get all of the benefits of being a homeowner – and with peace of mind.

To learn more about how an Islamic mortgage works and to read fatwas from our Sharia Board, visit www.guidanceresidential.com/islamic-finance.