At the heart of a traditional mortgage loan is the practice of lending and borrowing money at interest. The home buyer borrows money to buy a home, agreeing to pay it back over a period of time, with added interest.
This is not an acceptable business practice under Islamic principles. One reason is that in Islam, a loan is meant to be a charitable arrangement — a way for one person to help another who is experiencing hardship. It’s a noble act, and it requires that the borrower only pay back what they borrowed and the lender only to expect the exact amount that was lent. A loan is not a way to earn money.
In this model, the home buyer benefits from owning and living in the home long before they have finished buying Guidance Residential’s share in the property, so they pay Guidance a fee for using Guidance’s share of the property
One benefit of this model is that, as Co-Owners of the property, Guidance Residential shares the risks of home ownership with you. And fees are capped, free of the hidden expenses of a traditional mortgage.
Buying a home with Islamic financing involves the same four steps that any other U.S. home purchase requires: application, processing, underwriting and closing. The difference is that the contract itself is halal, or sharia-compliant.
The first step is to provide Guidance Residential with basic information about you and your finances so that you can find out how much funding you may qualify for.
You can start with a quick Pre-Qualification early in your journey if you would like to obtain a rough estimate of the home price you may be able to afford. But you can also skip that optional step and move directly to your Pre-Approval Application.
When you fill out your Pre-Approval application, you will submit documentation of information such as income, employment and savings. A financier will verify your application and let you know what financing you may qualify for. Being Pre-Approved means that you are ready to seriously begin looking for a home — Realtors will expect you to be Pre-Approved before they show you homes. Pre-Approval is also the first step if you would like to refinance a home you already own. Our online application walks you through the process and makes it simple to complete at your convenience.
After you make an offer on a home and your contract has been accepted by the seller, you will need to complete your application for financing that particular property. If you have already been Pre-Approved, much of the work will have already been done.
Guidance Residential offers a streamlined online application process that will speed up your Pre-Approval, and then allow you to merely add the final documentation once your contract is accepted on the home you are purchasing. You can complete the entire application process online from home. You can even upload documents on your phone and check the status of your application through your online portal. A Guidance team member is always there to help as well.
Recap—what to do in this phase:
Once you have found a home and are under contract, your Account Executive will send you a package including an estimate with information such as the contract amount, costs, fees, terms, and expected monthly payment. Once you accept, you will need to submit documentation on employment, finances, and assets. Guidance will also obtain documentation from third parties, such as title, private mortgage insurance, flood report, and the appraisal of the property’s value.
Recap—what to do in this phase:
• Provide additional financial documentation
• Arrange for home inspection and appraisal
Now your work is mostly done, and a licensed underwriter at Guidance Residential will thoroughly evaluate your financial information and supporting documentation. He or she will confirm your eligibility for financing while also ensuring that the application complies with federal regulations.
As the underwriter examines your documentation, they may need to make additional requests. It is important to respond to the requests thoroughly and in a timely fashion so your closing is not jeopardized.
Recap—what to do in this phase:
• Be prepared to provide additional documentation
• Pay close attention to deadlines and details
