Helping Non-Traditional Buyers Find a Loan

By MNR News posted 06-08-2022 15:18

Non-interest loans serve religious communities with restrictions on borrowing. And for non-citizens, ITIN loans open doors to homeownership.
Mortgages that charge interest on the principal loan are the backbone of the housing industry, allowing millions of Americans to purchase homes. However, a number of religious traditions, including Islam, and some sects of Christianity and Judaism, discourage members from obtaining loans that are repaid with interest.

Most non-interest-bearing financing is tailored to the needs of Minnesota’s Islamic community. Structured according to Sharia law, a code for living based on the Qu’ran, these loans are designed to eliminate riba’—or profits made via interest. They come in three basic categories:
Murabaha—Cost-plus-profit model
  • Homebuyer and lender become co-owners of property with share of ownership determined by each party’s investment.
  • Homebuyer makes monthly payments to lender until full ownership is obtained.

Musharaka—Co-ownership model
  • Homebuyer selects property, and lender purchases it on their behalf.

  • Lender sells property to the homebuyer at marked-up price payable in monthly installments.

  • Over time the homebuyer acquires full ownership in the property.

Ijara—Lease-to-own model
  • Homebuyer selects property, and a trust acquires it and rents it to the homebuyer.

  • Homebuyer makes payments to the trust until acquisition cost is reached. Then, the homebuyer acquires full title to the property.

Where to Obtain Non-Interest-Bearing Financing

There are four lenders in Minnesota offering a variety of Islamic financing products: Devon Bank, Ijara CDC, UIF, and Guidance Residential. Each company provides information about the scholars or advisory boards that have reviewed their products and issued rulings on Sharia. Islamic scholars may have differing interpretations of Sharia.

A few things to know about Islamic financing products:

  • Some up-front costs can be more expensive
  • Compatible with grant-based down-payment assistance (DPA) programs. However, loan-based DPAs may not be eligible.
  • Title rights may vary depending on type of financing. This includes the right to sell the home, refinance, take out home equity loans, and other actions.

Learn more by reading Non-Interest Bearing Financing in Minnesota, a detailed introduction from the Minnesota Homeownership Center.

Non-Citizens Can Obtain Funds with an ITIN Loan

Some non-traditional borrowers face an additional obstacle because they are not U.S. citizens and don’t have a social security number. In order to get a loan, they need to obtain an Individual Taxpayer Identification Number (ITIN)*.

To get an ITIN loan, the borrower needs to painstakingly establish financial credibility. That translates into filling out a lot more paperwork than required for U.S. citizens. Primarily, the borrower must provide:

  • Proof of sustainable income
  • Credit history
  • Income verification

Bottom Line: ITIN borrowers need to demonstrate impeccable financial qualifications to assure the lender that the loan will be repaid. 

Learn more about how foreign borrowers can obtain an ITIN by visiting the Internal Revenue Service website.

*This is also true for non-citizens who pursue conventional interest-bearing loans.