Today we close our first halal home financing file, and I could not be happier for the family.
Halal home financing is a way to buy a home without paying interest. Islamic finance avoids riba, which is generally understood as interest, along with arrangements where one side carries all of the risk. Every family decides for itself how to approach that, and many Muslim families have bought homes with a traditional mortgage. For those who would prefer a structure that avoids interest, halal home financing offers a path that honors both their faith and the goal of owning a home.
We are so proud to offer halal home financing to our community, with ultra competitive terms and the service you deserve. Here is how it works, what it costs, and what to expect.
How Ijara Works
The structure is called Ijara wa Iqtina, which means a lease that ends in ownership. In plain terms, it is rent to own.
We work with Ijara Community Development Corp. (Ijara CDC), a nonprofit that structures and manages the arrangement.
- A revocable trust is created for your home, with you as its trustee and beneficiary, and the home is titled in the trust's name at closing.
- Ijara CDC is added as a co-trustee to administer the arrangement.
- You sign a rent to own lease with the trust.
- Each month, your payment goes to Ijara CDC, which pays the financing on your behalf.
Over the term, your ownership grows until the home is fully yours.
Ijara CDC's process has been reviewed and approved by Islamic scholars through fatwas going back to 1995. We are not scholars, and we encourage every family to talk with their own imam or scholar about whether this structure is right for them.
What Stays the Same
This part surprises people. The qualification process works almost exactly like any other home purchase, following the same guidelines as conventional (Fannie Mae and Freddie Mac), FHA and VA programs:
- The same credit, income and asset review
- The same appraisal and property standards
- Fixed terms only
- Primary residences, second homes and investment properties
- Single family homes, 1 to 4 unit properties, and approved condos and townhomes
The pricing and terms follow the same program you would qualify for otherwise. You are not paying a premium to keep your faith.
What Is Different: The Costs
A one time structuring fee paid to Ijara CDC to prepare the trust and the rent to own documents. It appears in your closing costs and is based on the financed amount:
- Under $100,000: $1,295
- $100,000 to $200,000: $1,995
- $201,000 to $300,000: $2,495
- $301,000 to $417,000: $2,995
- $418,000 to $625,000: $3,995
- Over $626,000: $6,295
- A second financing on the same property: $625
For example, on a $300,000 home with 5% down, the financed amount is $285,000, so the structuring fee would be $2,495.
A small monthly trust administration fee, listed at $15 a month in the most recent schedule we received, for Ijara CDC managing the trust over the life of the arrangement.
These figures are based on Ijara CDC's current schedule and can change at any time. We will confirm current fees for your file before you rely on them.
You are also free to choose another provider. Ijara CDC is the partner we have worked with so far, but it is your choice.
A Note on the Words We Use
With Ijara, you make a monthly rent to own payment, and Ijara CDC handles the financing payment on your behalf. That is why we talk about terms rather than an interest rate.
One honest note so nothing catches you off guard: federal law requires the standard disclosures, so your Loan Estimate and Closing Disclosure will still say "loan," "interest rate" and "APR." That is a legal requirement for the paperwork, not a description of your arrangement. I will walk you through every page.
Give Yourself a Little Extra Time
The trust adds a few steps. The trust documents are signed in front of a notary, the originals go to Ijara CDC by mail, and the title company and underwriter both review the trust before closing. Our first file taught us to plan for that.
If you are writing an offer, talk with me first so we can build a realistic closing date into your contract.
How We Do Business
Every mortgage ad says "Equal Housing Opportunity," and it should. Treating every borrower fairly is the law, and it is the floor.
For me it goes deeper than that. Fair treatment means offering financing that fits who you are, including your faith. After 20 years in this business, I have never believed in a one size fits all loan, and I am extremely proud to offer programs like halal home financing to our customers and our community.
Let's Talk Before You Make an Offer
If you or someone you know has been waiting for a halal way to buy a home in Louisiana or Georgia, call me. We will review your options, confirm current fees, and map out a timeline that works.
Bernard Guste, Loan Officer, Nexa Lending
borrowlouisiana.com
