Are Guidance Residential ‘Islamic Home Mortgage Loans’ Really Halal?
We hear this question often: Is Guidance Residential’s Islamic home financing really halal? The answer is a simple and resounding YES.
Guidance Residential’s model of home financing was created with the help of Islamic scholars to fill the need for Islamic home financing in America, and our model remains approved by independent scholars today.
The question as worded in the title is misleading, because our home financing isn’t a “mortgage loan” at all. There are some external similarities between Islamic home financing and a mortgage loan, but in reality they are based on completely different foundations. Our Islamic finance offerings are riba-free and accepted by independent Islamic scholars as completely halal.
Are Mortgage Loans Permissible in Islam?
Before we go further, let’s address the question of whether mortgage loans are allowed in Islam.
Islamic scholars are in agreement that a mortgage loan involving the payment of interest is not permissible in general. Some scholars have stated that extenuating circumstances may make it permissible if it’s unavoidable.
However, it is now possible to avoid using an interest-bearing mortgage loan when buying a home in the United States, so it is clear that a Shariah-compliant approach is preferable, if not the only permissible option under Islamic principles.
3 Steps Guidance Residential Has Taken to Ensure Our Islamic Home Financing Is Halal
Step 1: Founded on Faith—and Meticulous Research
Guidance Residential’s purpose for existing is to provide a halal alternative to a conventional home loan for faith-conscious American families.
To that end, before ever opening for business, Guidance Residential spent three years researching and building a Shariah-compliant model of home financing that would work within the confines of American society.
Guidance worked with six world-renowned Muslim scholars to create a Declining Balance Model of Co-Ownership based on the Islamic principle of Musharakah Mutanaqisa or “Diminishing Partnership”.
Unparalleled in its expertise, our independent Shariah Supervisory Board comprises some of the world’s leading scholars of Islamic financial transaction law. These renowned experts were actively engaged in the design of our home financing program, and they remain involved in its ongoing oversight.
This extensive development process ensured that the resulting model was carefully and firmly planted in authentic Islamic principles and in ethical, equitable, and permissible financial practices.
>> Fatwas on the permissibility of our services are available for view.
Any financing in the United States must also follow federal, state, and local rules and regulations. So our product is structured in a way that looks familiar to those who are familiar with a mortgage, and our pricing is competitive with conventional loans as well. However, comparing a loan with Islamic financing is like looking at similar icing on top of two very different cakes. Our cake is halal.
>> Related Read – The Difference Between an Islamic Mortgage and a Conventional Mortgage
Step 2: Focusing on Riba-Free Home Financing
Guidance Residential is not a bank. After taking the lead as the pioneering company offering Islamic home financing in America, that service still remains our sole focus.
It is now possible to find large banks that have begun to offer “Islamic home loans” on this side – while dealing with a multitude of other non-halal services and practices. Guidance Residential, on the other hand, has remained true to our authentic purpose and our principles.
Here is what we do each day: We buy homes together with individuals and families through a riba-free model of financing so our community members can have a home of their own. Our co-ownership model of home financing is a partnership in which we buy a home together with the customer.
Gradually, the homeowner buys out our share of the property, eventually owning the home in full. No riba (or interest) is involved, because it isn’t a loan.
>> Related Read – The Purpose of an LLC in Islamic Home Financing
As the sole partner who is actually using the home each day, the home buyer pays Guidance Residential a fee each month for using our portion of the property, while also buying out our share over time. This arrangement is completely acceptable under Shariah principles.
That’s all we do. It is now possible to find big financial institutions that have started to offer so-called Islamic mortgages on the side, while most of their financial practices are not halal. We are not a bank, and therefore we do not participate in any riba-based activities. All of our work is rooted in Islamic principles. Each year, our focus is solely on expanding our service area throughout the United States and making our customers’ home-buying journey even better.
>> Related Read – Non-Bank Mortgage Financiers & Servicers: What to Know
Step 3: Audits By an Independent Board of Scholars
Guidance Residential takes an additional step to ensure transparency and scrupulous compliance: we undergo annual audits by our independent Shariah Supervisory Board.
Our independent Shariah Board comprises seven scholars, headed by Justice Muhammad Taqi Usmani, who is also the chairman of the Shariah Board for the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
The board appoints an auditor with specialized knowledge in Shariah as well as finance to examine Guidance Residential and report back on the extent of our compliance with Shariah principles. The audit ensures that a company is compliant with best practices and can detect early signs of possible noncompliance.
>> Related Read – What Is An Islamic Mortgage? How Does It Work?
The audit verifies the following:
- That a Shariah-compliant structure is in place
- That Shariah policies are updated and implemented
- Whether employees’ appraisals show that they have complied with guidelines
- That all products offered to consumers have been approved by the Shariah Supervisory Board and that a fatwa has been obtained
It also verifies that any income from non-compliant sources have been allocated to charity, and it reviews transactions for errors and opportunities for improvement.
This audit, conducted according to international AAOIFI standards, provides transparency for government regulators, investors, and consumers.
This strong and secure foundation and meticulous adherence to Shariah principles from Day 1 is what sets Guidance Residential’s program apart from others. A pioneer in Islamic home finance, Guidance Residential ensures that our customers can trust that the biggest purchase of their lives is conducted in accordance with their faith. And we renew that commitment with every passing year.
Get Started Now
Looking to refinance or purchase? Have a friend or family member who is looking for a home? >> Call 1.866.Guidance, find an account executive in your state or start an application online today!
>> Related Read – Do You Have to Be Muslim to Get a Riba (Interest) Free Mortgage?