Home Purchase

A home purchase is also known as Islamic Mortgage. It was basically created for Muslims who want to purchase property. The Sharia law forbids a person from making or receiving interest payments. The Home Purchase Plan has been approved by the Islamic Bank of Britain’s  Sharia’a Supervisory Committee and is available to Muslim and non-Muslim customers as an alternative to a conventional mortgage.

You can select a property which your mortgage lender will buy on your behalf. You have to normally pay around 10% of the property’s total worth. So legally in the beginning it is your lender who owns the property because he or she owns 90% of the share. Over a period of time, you make small repayments to your lender till you become the legal owner. The repayments consist of a rental income and a small proportion of the amount you borrowed. So basically, you are living on rent in your lender’s property. At the end of the term when you have finished paying off the full amount, the ownership rights of the house are transferred to you.

Though you can typically borrow 90% of the property’s total worth, your lender will allow you to take a maximum of 3-5 times your annual income. Therefore, the amount that you are able to borrow with home purchase is slightly lower than what you could have borrowed with a standard mortgage.

The Ijara
This is a really affordable home purchase plan. You can make the monthly repayments over a long period of time, which can go on for 25 years. The repayment rates are fixed. You also pay an adjustable monthly rent to your lender. It is interesting to note that in case of inflation the rent amount may decrease rather than increase. You need to deposit 10% of the property’s value and you can borrow up to 90% of the total value. You can make lump sum payments in the Ijara, which makes it more convenient than the Musharaka. However, lump sum payments will just reduce your future monthly payments and not your loan term. Also, you do not become the legal owner of the property till the end of the term.

The Musharaka
The Musharaka is less affordable as compared to the Ijara. The repayments have to be made over the duration of 15 years and they are fixed. You have to deposit 25% of the property’s value and can borrow 75% of it. But with every monthly repayment you basically purchase a share of the property, unlike the Ijara where you are not the legal owner of the property till the end of the term.