Guidance Residential – Frequently Asked Questions
How’s the Co-ownership Program different from a conventional mortgage?
A conventional mortgage is a debt whereby the borrower is bound to pay interest on the money owed, while the Guidance Declining Balance Co-ownership Program is a shared investment in real estate. This program is not a loan; it is a partnership. In the unfortunate event of nonpayment, a conventional mortgage lender may take your personal assets to satisfy the debt. However, the Guidance Residential Declining Balance Co-ownership Program is a non-recourse agreement. This means that your other assets are not at risk.
Is Co-ownership a more expensive way of purchasing a home?
No. The cost of Co-ownership is competitive with other forms of home financing.
How does Guidance decide who is eligible for the Co-ownership Program?
Eligibility is determined by your overall financial profile, including your income, savings, and payment history. These factors also affect the amount of financing for which you can qualify.
How long will it take for me to be approved for the Co-ownership Program?
Upon receipt of your signed disclosures and initial documentation package, we can provide a conditional commitment within 7 business days (if no further documentation is required to determine eligibility).
Generally, the process from application to closing can be completed within 30 days. You can begin this process by calling Guidance today at 866-guidance.
What initial documentation does Guidance require to render a conditional commitment?
The initial documentation package must include your most recent 30-day paystubs, your most recent 2 years of W-2 Forms, your most recent 2 years of tax returns with all schedules and your most recent bank statement. If Self Employed, your most recent 2 years of corporate tax returns with all schedules are required. Other documentation may be needed depending on the application scenario.
How does Guidance decide how many payments should be made and for how much?
The amount of your monthly payment depends on the amount of the contract, the term of the contract and the investors’ participation profit. We offer contracts for terms of 15, 20, or 30 years.
Can I, at some future time, make more payments than originally agreed upon?
Yes. If you make advance payments, your ownership stake will increase more rapidly and you will shorten the remaining term of the contract. There are no pre-payment penalties involved.
What if I want to make improvements to the property?
As the owner-occupant of the property, you are entitled to make improvements and profit from the increased value. However, you must obtain permission for improvements costing over $5,000, as they may affect the Co-owner’s investment. Such permission will not be unreasonably withheld.
What happens if I don’t make payments on time?
Under the strict interpretation of Sharia, it is forbidden to make a profit off of late charges. However, if you fail to make payments on time, you will be charged an administrative fee to cover the additional cost of sending you reminder notices and processing your late payment. If you stop making payments, you may lose ownership of your property.
Are my payments to the Co-ownership Program tax-deductible?
Generally, the IRS considers a portion of the monthly payments and other costs in home acquisition financing to be tax-deductible. Please consult an independent tax advisor about your individual situation.
Can I sell my house any time I want?
Yes. However, you must simply inform Guidance Residential that you wish to sell and obtain permission to do so. Such permission will not be unreasonably withheld.
What factors determine the price?
There are several factors that determine the price; such as the term of the contract and the market rate of return on investment required by the investors who purchase the Co-Owner’s obligation.
Is the profit just another way to manipulate the traditional mortgage calculation?
No. The Guidance Residential Declining Balance Partnership Program utilizes a Co-Ownership Agreement to establish a unique relationship between the Consumer and the Co-owner. This agreement makes the transaction a business investment and not an interest bearing loan. We do not change the names; we change the way we do business.
How are the profit rate and monthly payments determined?
The profit rate is determined by analyzing a current market rate of return on real estate transactions as well as how the market values the utilization of the Co-owner’s portion of the property by the Consumer who eventually lives in the home.
The monthly payment is comprised of:
- an acquisition portion;
- a profit portion;
- other portions that includes property taxes and hazard insurance payable by the consumer.
After my closing why do I receive a notification letter from Freddie Mac?
On May 20, 2009, President Obama signed into law the Helping Families Save Their Homes Act of 2009 that is designed, in part, to address many oversights in the conventional mortgage industry. In response to the requirements of this new law, Freddie Mac, a corporation chartered by Congress to support the home financing market, will be sending you a standardized notification letter. If you receive such a letter regarding your Declining Balance Co-ownership agreement, it’s no cause for concern.
The Declining Balance Co-ownership Program has been designed to comply with Sharia principles from A to Z – from the point when a customer enters a home financing transaction to the point where the ultimate funding for that transaction is provided. Guidance obtains external funding for the Program through an agreement with Freddie Mac. In this agreement, Freddie Mac makes investments to take a co-ownership stake in properties financed under the Program. This provides Guidance a steady stream of funds that we use to fund our Sharia-compliant home financing contracts. The notification letter is for informational purposes only and serves to meet the requirements of the Helping Families Save Their Homes Act.