Islamic Mortgages Now Available through MHFA

Islamic law forbids the renting of money through paying interest (usuary or Riba). How does a practicing Muslim who lives by this code obtain a mortgage? Receiving a mortgage is obviously predicated on your willingness and ability to pay interest to the lender.

A new program from the Minnesota Housing Finance Agency (MHFA) has been created to help these individuals get into homeownership without compromising their beliefs. From an MPR story:

Here's how the mortgage, known as Murabaha financing or "cost plus sale," works:

The state buys a home and resells it to the buyer at a higher price. The down payment and monthly installments are agreed to up front at current mortgage rates.

The deal is identical to a thirty-year fixed-rate loan, except there's no additional interest, because the higher up front price factors in payments that would have been made over the life of a traditional mortgage.

A handful of private banks and lending institutions offer Islamic mortgages in the U.S., but Minnesota Housing is the first state agency to offer such a product. The program is the brainchild of Hussein Samatar, director of the African Development Center in Minneapolis.

"The process is different, but the outcome will look the same," Samatar says. "We wanted to be as conventional as possible, while respecting the tenets of Islam."

Comments

[Matt]

OK, I have a few Qs:
1- Would buyer be entitled to the tax benefit that they would have if they had gotten a traditional mortgage?
2- What happens when they sell the house? do they sell it back to the state at such price? if not how is the debt to state satisfied if sold at current market value?
3- Doesn't state have a capital gain here which is realized at the time of sale versus over 30 year?
4- And to my moslem friends: Isn't this just fooling yourselves? The beast is the beast. You are just giving it a different outfit. Don't you think God knows better? educate me please.

[new york mortgage company]

This encompasses land along with improvements to the land, such as buildings, fences, wells and other site improvements that are fixed.

[new york payroll]

What is the diff. between Housing loan & property mortgage loan ?

[Philippines real estate]

The issue here is the religion. Islams forbids the renting of money through paying interest. Thanks to MHFA, a new program was made without having an issue on the beliefs of Islams.

[Jennifer Rubenzer]

I use and love MHFA products. And this gives more people the opportunity to take advantage of the soft second mortagages offered as incentives to MN first-time buyers.

I don't see this as a religious issue as long as any consumer can use the product. I can't imagine MHFA would be dumb enough to give any product a religious litmus test.

The issue I would be concerned with is the likely lack of equity or ability to build equity if the interest amount is rolled into principle. I think the key is understanding the products consequences.