It is not a loan. We are offering a Shariah Compliant alternative to the conventional loan model. We do not lend you the money and make money on money. This is Riba.
We actually take ownership on the property with you. Our model in based on the Islamic principle of Musharaka which means Partnership in Arabic. In essence we are becoming partners or investors in your home.
Our program is also referred to as a RENT TO OWN model. We both own the property but only you are using it. Therefore, you agree to pay us rent for using our share in the property while buying us out over a period of time.
For example: If we bought a house together for $100,000 and you put $10,000 down and we put $90,000. That means you own 10% of the house and we own 90%. Now if the house has 10 rooms you own 1 room and we own the other 9 rooms. However, you are using all the 10 rooms. You agree to pay us rent for using the 9 rooms while acquiring one room at a time from us. When you purchase the second room your rent goes down, when you have bought the third room it goes down even further and so on. Once you have acquired all the rooms we take our name of the title and transfer 100% ownership to you.
Our goal is to offer you a Shariah Financing program which is competitive with a conventional bank. In order to be competitive we match our rent or profit rate to current banking rates.
For e.g., if today banks are charging 6.75% on their 30 year loan we will also set our rent rate at 6.75% so your monthly payment will be the same regardless if you work with a bank or Guidance.
The difference is we take ownership on the property the bank will do it in a loan structure!!
The difference is in the details... we take ownership on the property; the bank lends you the money on interest. There is no ownership with a bank.
Even though the payment may be similar our paperwork, methodology and process is different. We are offering you an alternative to the loan model... ours is a Rent to Own model bank offers you an interest bearing loan option.
We are owned by 3 Muslim families of Syrian descent. They initially put up the capital to get us started.
When we first get into a transaction with you we bring our own funds to the table. Once we have bought the house together we now own a piece of the property. We can now sell our ownership share to another investor. The terms of our contract never change and any investor who buys our contract has to abide by the same terms.
We sell to both Muslim and Non-Muslim Investors. The transaction is done on a buy sell basis and there is no Riba involved. We sell our investment and make a profit. Just like if you sold a product you manufactured for a profit.
You never deal with another party you only deal with Guidance for the life of your contract.
Our partnership is an agreement between us. As partners we agree to certain rules and conditions. Based on our agreement we let you use our share in the property and for that you pay us profit or rent. As far as Property Taxes are concerned our agreement is that you will pay for them yourself. The reason is because Property Taxes pay for school district, libraries and other county services… things that benefit the partner living in the house. If we lived in the house with you we would share in the property taxes because we don’t you pay and benefit from these services directly.
There are 2 types of partnership contracts under Shariah law. Shirakat-al-Aqd and Shirakat-al-Milk. The Aqd partnership contract is a business agreement where both partners agree to share profits and losses based on their equity ownership in the business.
The Shirakat-al-Milk contract which we use is an "Asset Ownership" contract. The two parties are agreeing to buy an asset together. The partner who is using the asset is paying the other partner a utilization fee or rent to use the asset. In our case, the home is the asset that we are buying together. Our agreement states that you will pay us a rent or profit for using our property and at the same time you will buy us out over a period of time. Our profit is the rent you pay us monthly and your profit will be the appreciation on the property.
As far as losses are concerned… our contract is a non-recourse contract which means that is case of foreclosure we cannot come after our partner for any losses on the property. If the property sells for less than Guidance’s ownership share we take the loss and move on. We will not come after your other assets… in a conventional loan a bank can come after you to claim these losses as that is a loan.