UIF vs Guidance VS Other and pricing method?

[gigis]

AsalamuAlaykum, I have recently been looking to buy a home. I have looked into islamic financing and know the general concept, but wanted to know what the difference is between these different institutions and what your experiances have been.

I was also curious how the profit margin is calculated. As I understand these companies buy the house then resell it to you for more. How do they come to that resell price? I am sure it's based on credit score and downpayment, but is it also based on interest rates? (for example is it more now that interest rates are at 7%)

Also what is the possibility of refinancing considering they would sell you the house for more? would that be under an Ijara contract where you rent the portion of the home you do not own? and how is that rent for the Ijara model decided?

Not sure if this matters in this post, but I am from Virginia, looking for properties in VA and washington D.C. at the moment. I have a pretty good credit score almost 800, and would be able to put 20% down, but if possible I would prefer to put less, not sure how much that would change these formulas.

Any information about your experinace would be greatly appreciated JazakumAllahu Khair

 

[qktreasures]

@gigis Profit rate tracks with interest rate. Not much difference

 

[trapizdaipe]

@qktreasures So, based on your reasoning, if the price of orange juice was tracking the price of beer, it would be haram?

 

[eudy93]

@trapizdaipe Have you ever seen the price of orange juice tracking the price of beer? It will track only if it's labeled as orange juice but the content is wine.

I have mortgage from one of these Islamic Finance institutions, but as I know more about them, I feel like most are not even attempting to solve the issues of Riba at a personal or societal level that Allah and his messenger (may peace be upon him) wanted to solve by abolishing Riba. Rather, they are trying to tap into a big untapped market of God-fearing Muslims who want to stay away from Riba, by re-labeling interest as profit rate or other Halal-looking names.

To really solve this issue, what we want in the Ummah are experts in economics who are also God-fearing, with precise understanding of how the world works today, so that they can think out of the box and come up with a system that achieves what Allah and his messenger (may peace be upon him) wanted to achieve when making Riba haram.

 

[qktreasures]

@trapizdaipe Lol. Nice one.

 

[earthquakes]

@gigis Salaam IcyEagleMC, I am in Austin, TX and bought a home financed with Guidance Residential in 2022. The three main ones that are considered more/most halal are Guidance, UIF and Devon, if I am not mistaken. What makes it Halal is the way the contract is set up. There are a good amount of resources out there, including from these institutions, that explain this well.

Here are my note/pointers for you (in no particular order) through the process:
- The profit rate mimics the interest rate / market rate
- Do shop around with conventional banks and take that straight to the halals and have them match it. They may not match it completely, but they’ll want to compete
- The two main things to negotiate on are the rate and the loan origination fees … make sure you have the halals match that for you as close as possible to the conventionals
- When you gather the documents together for the first application, put them in a folder on your PC bc you’ll need them again for the other companies you apply with. All the applications are pretty much the same. VERY IMPORTANT - they will be able to give you a very close and good idea of the rate you qualify for without doing a hard inquiry on your credit score. Save the hard inquiry for the final two you move forward with.
- There is no pre-payment penalty (true for Guidance, but I think this is actually a requirement of Freddie and Fannie Mae, i.e. the govt institutions underwriting your loan). So if you come into a load of cash next year, you can essentially pay of your loan and not incur a pre-payment penalty.
- Our local Guidance representative was very responsive and knowledgable, but talk to all of them and see which one you find most suitable for yourself. Also, talk to people in your own community about the reps for these companies in your area.
- If rates were to come down, you’d be able to re-finance without any issue
- If you are putting less than 20% down, you may end up paying PMI insurance until the equity in your house reaches 20%.
- If the finance company person helping you cannot explain parts of the process to you clearly or you find them trying to rush you through requirements, don’t let that slide. This is not rocket science and you need to understand all aspect of this. Hold them to it, or seek help from other sources.
- Even though you may shop conventional loan for comparison, do not close with them. This is a long-term commitment and we know its best to be on faith with this transaction InshaAllah. My biggest fear - passing away with a haram loan on my name. Maybe you were not thinking about this, but if you were…

Here is why I personally chose Guidance:
- The rep was responsive and good with communication with the many many questions I had through the process
- Guidance charges you a ~$25 LLC per month fee to administer the contract, which is a reassurance of the halal aspect of the transaction
- Even though the loan may be packaged and sold in the marketplace (as almost all financing companies do), the administration of the loan ALWAYS stays with Guidance through its life

If I can answer any questions for you, feel free to ask them here or DM me.

Disclaimer: I did a decent amount of research into this in 2022 when I bought the house, but my notes above are just a best recollection of that. Please do plenty of research on your own. It may at time be a little overwhelming, but its not rocket science.

Some quick resources you may want to skim through:

https://www.islamicfinanceguru.com/articles/islamic-mortgage/what-makes-an-islamic-mortgage-halal

https://www.guidanceresidential.com...residential-islamic-home-financing-questions/

 

[sbmor777]

@earthquakes We just got a got a house via Guidance and I didn't even think to compare with conventional mortgages and try to get Guidance to match - I knew I was going to use Guidance.

Were you able to get Guidance to lower the rate/fees? I wonder how much money I could have saved.

 

[earthquakes]

@sbmor777 Yes, absolutely. If I recall correctly, my best conventional was .625 lower than Guidance. With my guidance rep pushing to get me a lower rate and me paying about ~$2,500 to buy down points, I closed at .375 less than original quote. This was more expensive than conventional, but I wouldn’t have gotten it if I didn’t shop around. As for the loan closing costs, I can’t seem to recall what exactly I saved on this. Hope this gives you an idea.

 

[arrowfire1274]

@earthquakes But they know you are coming to them as a Muslim not being able to do conventional. They know you need their services option of traditional, so why would they negotiate ?

 

[gigis]

@earthquakes JazakAllahu Khair, I will look into that.

 

[sbmor777]

@gigis Profit rate usually tracks interest rates. But the are based on a number of factors including credit score and down payment. You can also pay more at closing for better rates but it doesn't change the rate by much.

I would put 20% down if you can. Putting down less will most likely make the profit rate higher and you will have to pay mortgage insurance (additional fee added on to monthly payments). The fee isn't huge so maybe when you look at the numbers you could decide you want to put less down and are ok with the mortgage insurance until you've paid back 20%.

 

[creativecloud]

@gigis who pays the property tax?

 

[jennee]

@creativecloud Buyer pays that, which means you.

 

[silverblack59]

@gigis I'm researching Guidance now, my concern is what happens when sold. The individual keeps the profit but what about all the money paid in? (the monthly payments) Comparing to the conventional loan system, this is referred to as equity. JAk

 

[earthquakes]

@silverblack59 The profits go to the company making the loan. You keep the equity/principal. But keep in mind that on month 1 you are paying LOTS more into the profit than into the equity/principal. And that balance gradually shift over the life of the loan.

 

[wiscguy]

@gigis I wouldn't go with Guidance. Profit Rate = Interest Rate. I have Guidance, and I am paying a profit rate equivalent to an interest rate. If it walks like a duck, quacks like a duck, It's a DUCK. I am literally paying interest.