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This issue is explored here, insha’Allah, in 3 sections:

Section A: Basics

Section B: Some Frequently Asked Questions

Section C: Some Youtube Videos

 
Section A
BASICS  
about the issue of purchasing houses 
or other items with loans from banks.

Praise be to Allaah.

Loans from banks are of two types:

1. A “goodly loan” (qard hasan) which does not involve any additional payment (interest); there is nothing wrong with this;

2. A loan with interest, which is riba, and there is scholarly consensus that it is haraam. It is not permissible except in cases of urgent necessity which cannot be met except by taking out a riba-based loan. The need for housing does not reach a level which makes it permissible to deal with riba, because this need can be met by renting. So it is not permissible to take out a riba-based loan in order to buy a house.

Ibn Qudaamah (may Allah have mercy on him) said:

“Every loan in which it is stipulated that something extra must be paid back is haraam, with no difference of scholarly opinion. Ibn al-Mundhir said: [the scholars] are unanimously agreed that if the lender stipulates that the borrower must pay extra or give him a gift, and he lends him money on that basis, then accepting the extra payment is riba. It was narrated from Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood that they forbade every loan that brings benefits, because loans should be given as an act of kindness and an act of worship aimed at bringing one closer to Allaah. So if there is a stipulation of extra payment, this diverts the loan from its purpose.”
Al-Mughni, 6/436

This applies if the aim is take out a loan from the bank that clearly involves interest.

If the aim is to buy a house through the bank, this also is of two types:

1. The bank buys the house for itself first, then sells it to you for a higher price, in instalments. There is nothing wrong with this, but it is essential that the contract be free of any stipulation of riba, which is the condition that a penalty be paid in the event of any delay in paying the instalments, because stipulating this penalty is riba and is haraam.

2. The role of the bank is to finance the purchase in return for interest, so it pays the price of the house for you, on condition that you will pay it off in instalments in return for interest that will be taken from the bank. This is a riba-based loan and is haraam.

It is no secret to you that riba is a major sin, and there are stern warnings concerning it that are not given for other sins; Allah threatens war to the one who commits this sin and He told His Prophet (blessings and peace of Allah be upon him) that there is a curse upon the one who consumes riba and the one who pays it. This is a strong warning against falling into this evil.

Qur’anic Proof:

“O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)”

[al-Baqarah 2:278-279].

Hadith One (Saheeh):

Muslim narrated (1598) that Jaabir (may Allah be pleased with him) said: The Messenger of Allaah (blessings and peace of Allaah be upon him) cursed the one who consumes riba and the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same.

Hadith Two (Saheeh):

And the Prophet (blessings and peace of Allah be upon him) said: “A dirham of riba that a man consumes knowingly is worse before Allah than thirty-six acts of zina (adultery). Narrated by Ahmad and al-Tabaraani; classed as saheeh by al-Albaani in Saheeh al-Jaami‘, no. 3375

And Allah knows best.

The above is extracted from ‘Islam Q&A’ – Fatwa No : 143149 http://islamqa.info/en/ref/143149/buy%20house

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Section B:

A few real-life cases of Frequently Asked Questions below:

Case Study One:

Should he sell his house to an Islamic finance company to pay off the remainder of a riba-based loan?

Q1:

I live in Canada. Five years ago we committed the crime of buying our house through an interest based mortgage from a local bank here. Relying on many fatawa of scholars here (may Allah forgive them!).  Two years ago Allah guided us to Islam like if we just knew it. Recently, some Islamic (as they claim) financing companies here started to appear.  The following is an explanation of their way to convert an interest based mortgage to Islamic financing, based on cooperating: the Islamic company deals with a bank that deals with interest to finance their project. This Islamic company says that its relationship with the bank is not a Riba relation, it is a trade relation. This company values the house in the local market; an appointed person licensed by the government does this valuation matter.  The monthly amount I have to pay is based on the rest of the loan I took and the profit which is about 4.9%.  Some of this monthly amount I pay goes as profit, and the rest is to be discounted from the actual price of the house. The Islamic financing company’s share is the difference between the price of the house now and what is remaining to be paid of the interest-based loan. The company evaluates the price of the house every one, two or five years. Their share of profit changes according to the number of years I choose. This means that the nisbah of profit is fixed, but the share of every one of us gets evaluated every few years.  What remains of the mortgage (their share of the house) is $178.000, their profit in the first five years is 49038.88$, and I own of the house what equals 18408.08$ of the house which cost is $178.000.  The relationship between the company and the bank is unclear. It depends in its essence on buying money with money; as they did not buy the house formally. All these transactions are only on paper between the company and the bank. The house actually has nothing to do with these transactions except that it is mentioned on papers between the two sides. We are really confused, we hope you enlighten us.

A1)

Praise be to Allaah.We ask Allaah to reward you with good for your keenness to seek what is halaal and to rid yourself of the effects of what you did by taking a loan from the riba-based bank. We will answer your question as follows:

Firstly: consuming riba and helping others with it is haraam and is in fact a major sin. Muslim narrated in his Saheeh that Jaabir (may Allaah be pleased with him) said: The Messenger of Allaah (peace and blessings of Allaah be upon him) cursed the one who consumes riba and the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same.

A loan in which is stipulated that something extra will be paid to the lender, as the banks do, is haraam and there is no difference of scholarly opinion on this point.

Secondly: You said that you did that as you were unaware that it is haraam. We hope that this means that there is no sin on you because of that. Allaah says in the verses which speak of the prohibition on riba (interpretation of the meaning):

“So whosoever receives an admonition from his Lord and stops consuming Riba, shall not be punished for the past; his case is for Allaah (to judge)”

[al-Baqarah 2;275].

It says in Fataawa al-Lajnah al-Daa’imah li’l- Ifta’ (13/352): With regard to the interest that you took before you came to know that it is haraam, then we hope that Allaah will forgive you for that. As for that which you got after you came to know, you have to get rid of it and spend it on charitable causes. End quote.

Thirdly: You do not have to sell the house to the company mentioned or to any other in order to pay of the loan. If it is stipulated in the loan contract that the lender will get some benefit, even if it is haraam, it does not invalidate the loan, so your purchase of the house is valid, and your ownership of it is valid, and you do not have to sell it in order to expedite paying off what remains of the loan to the bank, especially when the ways of dealing with the company you mention, are not free of ambiguity. At the end of your question, you mentioned that they will not buy the house in real terms; if the sale and purchase are done on paper and possession is not really taken of the house before it is sold for a second time, there is the fear that the company’s dealing may be a trick to commit riba in the name of selling.

And Allaah knows best.

(Answered by : Islam Q&A –  http://islamqa.com/en/ref/84285/house )

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Case Study Two: He took a loan with riba to buy a house under pressure from his father
 
 
Q2)
I am a person who repented from having taking any riba-based loans, but a short while ago my parents asked me to take out a riba-based loan to buy a house, because the house in which we were living did not belong to us and because the owner was insisting on taking the house back, and we are not in a financial position to buy another house. I insisted that we should rent a house and that that was better than falling into haraam, but they got angry and I was forced to take a riba-based loan with another member of the family and buy a house. I did not want anything to do with this loan before it was taken out, but the loan is in my name and the name of another family member. Is there anything I have to do, since I objected and until now I still object?
 
 
A2)

Praise be to Allaah.

It is not permissible to take out riba-based loans from the bank or elsewhere, even if that is to buy a house to live in, because of the texts which state that riba is emphatically forbidden, and the stern warning that is issued against it. Allaah says (interpretation of the meaning):

“O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

{Ayat 279} And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)”

[Surah al-Baqarah, 2:278-279]

Muslim (1598) narrated that Haabir ibn ‘Abd-Allaah said: The Messenger of Allaah (peace and blessings of Allaah be upon him) cursed the one who consumes riba and the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same.

Ibn Qudaamah (may Allaah have mercy on him) said: Every loan in which it is stipulated that more be paid back is haraam, with no difference of scholarly opinion. Ibn al-Mundhir said: They were unanimously agreed that if the lender stipulates that the borrower must pay back an extra amount or give a gift, and he gives the loan on that basis, this is riba. End quote from al-Mughni (6/436).

Buying a house is not an excuse for committing this grave major sin. You could be content with renting a house, as you said.

You made a mistake by entering into this transaction, and you should have stuck to your guns even if that led to your parents or your family getting angry, because there is no obedience to any created being if it involves disobedience towards the Creator, and your objection was not enough when you went along with signing for the loan or part of it being in your name.

What you have to do now – and what everyone who has taken a riba-based loan must do – is repent to Allaah and regret what has happened, and resolve firmly never to go to this major sin again, concerning which such a stern warning has been issued that is not mentioned with regard to any other sin. We ask Allaah to keep us safe and sound.

But there is no sin on you if you live in this house. The Standing Committee was asked about a man who took a riba-based loan and built a house. Should he knock down the house or what?

They replied:

If the situation is as described, what you have done by taking out this loan is haraam because it is riba, and you have to repent and ask forgiveness for that, regret what you have done and resolve not to do it again. As for the house that you built, do not knock it down, rather make use of it by living in it etc, and we hope that Allaah will forgive you for what you have done. End quote from Fataawa al-Lajnah al-Daa’imah (13/411).

We ask Allaah to pardon us and you, and to forgive us and you.

And Allaah knows best.

Answered by: Islam Q&A ( http://islamqa.info/en/ref/95005/buy%20house )

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Case Study Three: Buying a house by instalments from the bank
Q 3)
My father died and I have become responsible for my siblings. We were renting a house but the owner decided to throw them out on the street because he wanted his house. I decided to buy a house for them by instalments from a bank that is not Islamic, as we do not have any Islamic banks in our country. Is this haraam or considered to be riba?.
 
A 3)

Praise be to Allaah.

Firstly:

Buying an item via the bank may be done in two ways:

(i)

The bank merely finances it and lends the customer the price of the item or pays it on his behalf, in return for getting back the money and something extra, such as if the price of the item is one thousand, and it takes back one thousand and two hundred in instalments. This way is haraam, because in fact it is a loan with interest, so it is riba.

(ii)

The bank buys the item in a real sense, then sells it to the customer for a higher price to be paid later. There is nothing wrong with this, and it is what is called a muraabahah transaction. It is not permissible for the bank to sign a contract of sale with the customer until it has bought the item, because it is proven that it is forbidden to sell what one does not possess.

But (the bank) may take a promise from the customer to buy the item when it takes possession of it, but this promise is not binding.

Based on this, if the bank buys the house then sells it to you by instalments, there is nothing wrong with that, but if it does not buy it, rather it is giving you the money or paying it on your behalf, on the basis that it will get the money back and more, then this is riba, and the stern warning that is issued concerning riba is no secret.

Secondly:

What you have mentioned about your siblings needing a house is not regarded as a case of necessity which makes riba permissible, because it is possible to ward off that harm by renting.

See also the answer to question no. 94823 and 85197.

And Allaah knows best.

(Answered by: Islam Q & A http://islamqa.info/en/ref/110006/buy%20house)

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Case Study Four: Expensive houses that one can’t afford otherwise.

Q4) Can someone answer my question please? I live in Singapore. I will not be able to avoid riba when getting a house loan because for me to pay it in full, I need to be a millionaire. There is no Islamic loan service for homes. So what can I do?

(Question by: prana888 1 year ago on http://www.youtube.com/watch?v=abcBzwOkAUc )

A4) Assalam alaikum may Allah make it easy for you as you are striving hard to stay away from haram. There is a lecture about this, search http://www.halalbucks.com/2010/02/08/you-are-wealthier-than-you-think/

(answer by livinghalal          1 year ago      )

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Case Study Five:Borrowing from a riba-based bank in order to buy a house

Q5)

I want to take a loan from the bank in order to buy a house. This will involve the following:

1 – I join the bank al-iskaan (bank that deals in mortgages) and pay 182 dinars a month for four years, i.e., 8736 dinars in total, which will become 10,000 dinars (deposits plus interest).
2 – Then I will be able to borrow 20,000 dinars from the bank, which I will have 13 years to pay back at an interest rate of 6.75% per year.     – In addition to that, there is a top-up loan of 20,000 with an interest rate of 8.25%.  When I move into the house, I will be renting it from the bank until the loan is paid off, then it will become mine. The period for paying off the loan is between 13 and 15 years. What is the ruling on this?.

A5)

Praise be to Allaah.

Dealing with riba (usury, interest) is a major sin against which Allaah has issued a stern warning. He says (interpretation of the meaning):

“O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)”

[al-Baqarah 2:278-279]

“Those who eat Ribaa will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaytaan (Satan) leading him to insanity. That is because they say: “Trading is only like Riba,” whereas Allaah has permitted trading and forbidden Riba. So whosoever receives an admonition from his Lord and stops eating Riba, shall not be punished for the past; his case is for Allaah (to judge); but whoever returns (to Riba), such are the dwellers of the Fire — they will abide therein”

[al-Baqarah 2:275]

And it was proven that the Prophet (peace and blessings of Allaah be upon him) cursed the one who consumes riba and the one who pays it. Narrated by al-Bukhaari, 5962. In the transaction asked about here, both the individual and the bank are giving and taking riba. The Prophet (peace and blessings of Allaah be upon him) said: “A dirham which a man consumes as riba knowingly is worse before Allaah than thirty-six acts of zina.” Narrated by Ahmad and al-Tabaraani; classed as saheeh by al-Albaani in Saheeh al-Jaami’, no. 3375. And he said: “There are seventy-two types of riba, the least of which is like a man committing incest with his mother.” Narrated by al-Tabaraani in al-Awsat; classed as saheeh by al-Albaani in Saheeh al-Jaami’, no. 3537.

The scholars are unanimously agreed that every loan involving interest or any kind of benefit is haraam. Ibn Qudaamah (may Allaah have mercy on him) said: Every loan in which it is stipulated that an additional payment be made is haraam, with no scholarly dispute. Ibn al-Mundhir said: They are unanimously agreed that if the lender stipulates that the borrower must pay extra or give a gift, and he gives the loan on this basis, this is riba. It was narrated from Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood that they forbade loans that lead to any kind of benefit (extra payment, gifts, etc).  Al-Mughni, 6/436.

Secondly:

With regard to the idea of you renting the house until the loan is paid off, after which it will be yours, this is also haraam. We have already stated in the answer to question no. 14304  that rent-to-own schemes are haraam.

To sum up, this transaction is haraam and it is darkness upon darkness. It is not permissible for a Muslim to take the matter of riba transactions lightly after the stern warning about such transactions has been proven and it has been definitively established that they are haraam. Rather what he must do is to seek that which is halaal, for every body that is nourished by haraam, the Fire is more suited for it. But whoever gives up something for the sake of Allaah, Allaah will compensate him with something better than it.

The Standing Committee was asked about the Islamic ruling on taking a loan from a riba-based bank in order to build a modest house. They replied:

It is haraam to take a loan from banks or elsewhere with riba, whether that is to build something or to spend it on food, clothing or medical expenses or to start a business and earn more money, or any other purpose, because of the general meaning of the verses that forbid riba, and the general meaning of the ahaadeeth which indicate that it is haraam. Similarly it is not permissible to deposit money in banks etc that pay interest.

And Allaah is the Source of strength. May Allaah send blessing and peace upon our Prophet Muhammad and his family and companions.

Fataawa al-Lajnah al-Daa’imah (13/385).

And Allaah knows best.

(Answered by: Islam Q&A – http://islamqa.info/en/ref/39829/expensive%20house)

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For more real case studies and other frequently asked questions about RIBA’, visit this website –

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Section 3
A few Youtube videos about Mortgages in Islam:

a

b

c

d

e

f

g

h

i

Disclaimer: Materials provided are for your consideration, but always do your research using the Quran, books of Hadith, or consult a scholar, an alim, or a knowledgeable person before buying your house. Allah knows best. {v.m}

Image Credit : http://realestatenewpa.blogspot.com.au/2011/05/real-estate-ideas-for-buying-home.html

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