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.