QUESTION:
Minimum wage and high rental in the United States makes it difficult for a person to save towards purchasing a house. I was looking into “Guidance Residential USA Islamic Finance”, where you find the co-owner of a property and you pay the co-party, basically what you can call a mortgage. As you pay, your share of the house increases. However, even if you are a 10% shareholder, you have full authority to sell the property and finish off the payment. Would such a transaction be permissible? Please share any information regarding financial institutuions.
ANSWER:
We are not aware of the modus operandi of the financial institutes in the USA, hence making it difficult for us to comment. However, we will provide some Halaal options of purchasing through financial institutions, which could assist you in purchasing a home.
1. DIMINISHING PARTNERSHIP
The method of enacting a diminishing partnership is as follows: Zaid wants to purchase a house but has only 50% of the funds required to purchase the house. He therefore requests a friend, Amr, to purchase the house with him in a joint diminishing partnership, which Amr agrees to. Both parties contribute 50% of the capital towards the purchase of the house and buy the house.
Now, Zaid will rent Amr’s 50% of the house at a stipulated rental (for example, $100.00) that will be paid to Amr every month. However, Zaid also saves money to purchase Amr’s portion of the house in portions as he accumulates funds. When Zaid accumulates (not necessarily every month) enough funds to purchase for example 10% of Amr’s property, then both parties agree upon a price for the 10%. Zaid then purchases 10% of Amr’s portion and acquires 60% ownership of the house, whilst Amr owns 40% of the house. Amr may now adjust (reduce) the rental amount (to a rental which both parties agree upon), as Zaid is now occupying only 40% of Amr’s portion of the house.
This is the procedure to be followed in the remainder of the property until Zaid has attained 100% ownership of the property. This method is in order and permitted in Shariah, with the proviso that the agreement entered into between the two parties is 100% Shariah compliant, meaning that the agreement should not have any clauses that are against Shariah. This option can be enacted with a financial institute as well with the proviso that all clauses in their contract are Shariah compliant.
2. ACQUIRING AN INTEREST-FREE LOAN
Another option would be to try and acquire an interest-free loan from family members and close associates to purchase the house. These loans could then be settled from your savings as arranged between both parties. This option would be the most suitable and economically viable for you, as you would not be required to pay anything over and above the principal loan amount.
3. BUYING THE ASSET FROM THE INSTITUTE
If acquiring an interest-free loan is not possible, then you may request a finance provider to purchase the asset that you are interested in for themselves. The asset will belong to the finance provider on concluding the purchase. The finance provider should take possession of the asset by acquiring the legal documents that indicate towards ownership of the property such as the title deeds. It is not necessary that the asset is transferred into the finance provider’s name. Now that the finance provider is considered as the owner of the asset, he may sell it to you at a profit. However, when selling the asset to you, the final selling price, monthly installment amount, total number of installments, etc. should be fixed leaving absolutely no room for any future dispute. Again, the agreement between the finance provider and you should be Shariah compliant.
These are some of the options that may be implemented in purchasing a home.
ALLAH TA’ALA ALONE IN HIS INFINITE KNOWLEDGE KNOWS BEST!
ANSWERED BY:
Mufti Mohammed Desai
Date:- 29 Muharram 1445 / 17 August 2023
