Three Reasons Why Millennial Homebuyers Should Choose Islamic Home Financing
Why Young Muslims and Non-Muslims Should Reap the Benefits of an Islamic Mortgage
There’s no shortage of jokes poking fun at millennials, but America is increasingly recognizing the fact that millennials tend to hold strong values – and live by them.
Millennials were born roughly between 1980 and 2000. They were once considered a quiet and inactive generation, even lazy and self-centered. More recently, however, they have been recognized as a deeply value-driven group who believe in the power of activism. And they are making a difference.
According to a 10-year study completed in 2019, millennials are not only the most diverse generation, but they want to change the world. In fact, according to the Millennial Impact Report, they are not only making change, but they’re changing how change is made.
Millennials care deeply about a range of causes, with top priorities including civil rights and debt relief. What’s more, they take action to support their values, because they believe their actions can impact the world. And they don’t wait for an opportunity to make change on a large scale – they consider the impacts of even small everyday actions like their purchase habits. Those actions include where and how they spend their money: According to another recent survey, 42% of millennials are more likely to buy from companies that support causes they care about. Millennials are conscientious consumers.
This is a very different picture of millennials that has emerged: caring, value-driven people who use everyday actions to enhance social justice. All of this makes Islamic home financing the perfect choice for millennials buying homes.
1. Invest in Your Values
First, faith matters to Muslim millennials. While other faith groups have seen ties to religion decline among this generation, Muslim millennials are as likely as their elders to say religion is “very important” to them and to go to the mosque at least once a week.
As more millennials buy homes, such strong values make Islamic home financing a natural choice. Unlike earlier generations who did not have Islamic home financing options, millennials today don’t have to make a choice between their values and their aspirations to become a homeowner. Islamic finance principles are clear: Riba (interest) is not permitted, especially when there is a riba-free alternative.
Since millennials are conscious of their values when making choices for even small everyday purchases, it is only natural to be even more conscious about what may be the biggest purchase of their lives – a home. It is fortunate that – just in time for this generation to buy their first homes – Guidance Residential pioneered an authentic riba-free alternative that has become widely available nationwide.
2. Support Social Justice
Younger generations are increasingly more aware and less tolerant of exploitation and inequitable power arrangements. A traditional mortgage is highly inequitable, with large banks empowered to create a multitude of policies that extract profit from customers coming to them in a state of need. Even worse, some of those policies – such as percentage-based late fees – punish the borrower more just when times are more difficult. This whole scenario is abhorrent to anyone concerned with social justice and equity.
Stepping into this scenario is Islamic home finance, which provides a much more equitable agreement, right from the foundation. Rather than the lender/borrower arrangement of a conventional mortgage, Guidance Residential’s customers are co-owners with the company. We invest in a property together, sharing in some of the profits and risks. Even just the term co-ownership denotes the respect that underlies this arrangement.
To look into it a little more deeply, riba is forbidden in Islam in part because it punishes a person who is already in need and possibly in a difficult situation. A loan is seen as a noble act, not a business model – it’s a way for one person to help another without gaining anything in return. Using a loan to profit from the person in need is anything but noble.
Islamic financial principles protect both the community and the individual, limiting excessive accumulation of wealth by the most powerful in the society. This can help prevent situations like the 2008 financial crisis in the home mortgage industry, which resulted from unjust financial practices. Islamic finance leapt into the spotlight due to its ethical and values-based principals. Islamic financial principles prohibit speculative and unfair practices that were prevalent in the housing market, and as a result, the Islamic home finance market thrived.
Islamic home finance options provide an alternative based on permissible principles such as joint investments. This equitable approach is gaining quickly in popularity. Since its inception in 2002, Guidance Residential has provided more than $6 billion in financing to more than 25,000 families who were enabled to fulfill a dream and a need in accordance with their values.
3. Limit Debt
Millennials are particularly stressed by debt, according to reports in Business Insider magazine. Among millennials with a mortgage who responded to a recent survey, nearly 50% reported feeling “some” or “a lot of” stress over it – a higher percent than respondents of other ages. Young adults see success as not being rich but being debt-free.
A mortgage is the largest debt most Americans take on. Islamic home finance offers an alternative that is an investment rather than a loan.
Guidance Residential’s groundbreaking model of Islamic home finance is based on the sound Islamic principle of Diminishing Musharakah. Musharakah, which means “sharing” in Arabic, denotes the fact that the two parties invest in a property together. The homeowner pays Guidance Residential a usage fee for the company’s portion of the property while gradually buying out the company’s stake. This aligns more closely with millennials’ preferences than a large loan.
Avoid the Hidden Risks of a Conventional Loan
The hidden risks of a conventional mortgage loan highlight the inequities that are anathema to a socially conscious millennial.
All of the risks of a traditional mortgage fall on the homeowner. If you can no longer pay and your home goes into foreclosure, you are responsible for the full loan amount, whether or not the sale of the home can cover the cost, and banks will sometimes pursue the unlucky borrower’s personal assets to make up the difference. In contrast, in the case of foreclosure under Islamic financing, the company is prohibited by Islamic principles from taking anything more than the asset in question. In other words, the home will be sold, but Guidance Residential does not pursue any other assets to cover a loss.
Note that while Guidance Residential would take the loss in that foreclosure scenario, all profits from a normal sale belong to the homeowner alone. The homeowner is protected in both cases.
Similarly, in the case of a natural disaster or eminent domain (which is when the government seizes part or all of a property for public use), losses are yours to bear alone under a traditional mortgage. In contrast, under Guidance Residential’s co-ownership program, the risks are shared. For details, read more.
The benefits of Islamic finance are most evident in situations when things don’t go according to plan. When you are struggling, that is when Islamic financial principles protect you most. This arrangement may particularly appealing to justice-conscious millennials.
A Last Word
It is becoming increasingly obvious to many Americans, particularly millennials and younger generations, that the current financial situation is rife with injustice. Interest in itself—which the entire industry is based on—is an oppressive practice that is forbidden in Islam. By contrast, the co-ownership relationship pioneered by Guidance Residential is more equitable. For that reason, it appeals to many younger Americans regardless of faith.
Islamic financial principles foster distribution of wealth throughout communities, while financial equity uplifts families and society at large. At Guidance Residential, our mission is to provide that equitable solution in the American home finance industry. It’s a mission that more millennials find appealing every day. For those who want to take a stand for justice and equity with their everyday actions, Islamic home financing is a perfect fit.
Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Rates have dropped to historic lows! Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today!
Learn more about Islamic Home Financing:
- What Is an Islamic Mortgage and How Does It Work?
- Hidden Risks: The Pros and Cons of a Conventional Loan
- Are Guidance Residential Islamic home mortgages really halal?