Guidance Residential Offers Hope for Growing Muslim American Community

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Guidance Residential Offers Hope for Growing Muslim American Community

By Guidance Residential

Islam has become the fastest growing religion in the U.S. in the last ten years, with the number of Muslims in the country more than doubling from 1 million in 2000 to over 2.6 million today. This expanding community, with families engaged in all occupations and professions, increasingly aspires to home ownership, to owning their own residences in which they can raise their children and live in comfort and dignity. This has led also to an increasing need for Islamic finance for homes, which was very difficult in the U.S earlier because of strict regulations of financing.

Guidance Residential is a company offering a Sharia-compliant home financing known as the Declining Balance Co-ownership Program. The company comes in as a co-owner in a home selected by a customer. Instead of a conventional mortgage in which a bank or finance company lends money to the home purchaser on which repayments must be made with interest, the customer and the company become partners and co-owners in the residence. The customer pays what they have available towards the purchase price of the home, the equivalent of a down payment, with Guidance paying the remainder of the purchase price. Each then owns a percentage of the home equivalent to their percentage of the purchase price.

In some instances, Guidance may bring in other investors to also take partial co-ownership shares in the property. The customer and his family receive the exclusive right to live in and use the home. Guidance and any other investors involved in purchasing the home then receive a monthly profit payment in exchange for that right. The customer also pays an additional amount each month that is used to buy an increasing share in the ownership of the home from Guidance and any other investors, known as ‘Acquisition payments’.

As these Acquisition payments are made, the customer gradually owns a greater percentage of the home, and the share owned by Guidance or other investors decreases, becoming a declining balance or Diminishing Musharakah (which means profitable sale). In a process that can be designed to take 15, 20, or 30 years, the customers ultimately becomes the full owner of the home. In this manner, the Muslim family desiring home ownership can strive towards owning their own residence while honoring the principles of Sharia and avoiding financial arrangements involving the payment of interest on lent money, such as with conventional home mortgages.

Such conventional home mortgages involve the lending of money to the home purchaser. The interest on the loan essentially being an exchange of cash for a greater amount of money in the future, which is prohibited as riba, or the profiting from financial distress under Sharia. With a Diminishing Musharakah transaction, there is no borrower-lender relationship, but rather co-owners in the property, with more and more of it being sold over time to the customer who ultimately becomes the full homeowner. The customer knows in advance what their monthly payments will be, and, as the exclusive resident, is responsible for property taxes and insurance on the property. This arrangement also enables the customer to enjoy the federal tax benefits available to home purchasers.

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