Islamic Home Finance

Ace Financial Advisory

Islamic Home Financing

Islamic Home Financing at a minimum involves 2 contracts that are usually an Ijarah Wa Iktana (Islamic leasing) and diminishing Musharakah (reducing partnership). This structure involves 2 steps:

1) An Individual and an Islamic Financial Institution enter into a Musharakah (Partnership) contract to buy a house, where the individual provides, let’s say 20% of the price of the house, and the Islamic Financial Institution  80%. The legal title of ownership is left to the Islamic Financial Institution, for the time being holding the individuals share in trust.

2) Then the Islamic Financial Institution enters into an Ijarah contract with the lessee, where the Islamic Financial Institution rents out its share (80%) of the house to the lessee. At this point the legal title of the house is still held by the Islamic Financial Institution; and the Individual gets an ownership of the usufruct (right to use) of…

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