Islamic Home Finance Solution

Question:

Due to my income, I can’t get an approval from one of the Sharia financing companies here in USA, like Guadance, LaRiba or Ijara, but I can get an approval from other banks. The question I have is, what if I go with another bank with 30 yrs financing and tell them to calculate the interest rate for 30 yrs and add it to the purchase price of the house and it’ll be the same amount of monthly payment every month if I pay more than the minimum payment and also it will not be a problem if I pay the loan off early or 30 yrs, the loan amount will be same for paying it off with in 1 year or 30 years. If I go that route my monthly payment would be less than renting a house since I’m married and have 4 kids. Guidance and other sharia banks won’t approve me since my pay don’t meet their requirements. Lots muslims here in USA do that when they buy cars, they buy down the interest rate and it’s added with the purchase price, so the purchase price stays same. So I wanna know if it’s permissible to buy down the interest rate if I go with any other bank?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

There are many fundamental as well as procedural differences between Islamic Banks and Conventional Banks.

The issue is not about the final amount. Adding the interest amount to the purchase price in a conventional bank will not make the transaction Shariah Compliant as the full amount will still be regarded as a loan with interest.

In an Islamic Bank, the Bank purchases the business and after assuming full ownership, sells the house to the purchaser with a profit. In this case, the purchaser pays for the house and not simply towards a loan.

Accordingly, the arrangement with the Conventional Bank to add the interest amount to the loan is not permissible. If this procedure is used in the purchase of motor cars, then that too will not be permissible.

And Allah Ta’āla Knows Best                                       

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.