Buying a house through Muraabahah

14-9-2005 | IslamWeb

Question:

I do live in Canada and having interest in buying house or apartment. There are Islamic organization who claims that they offers interest free loan. There is one new organization called UM Financial offers the home financing loan, among of them. They encourage to visit their website www.umfinancial.com.
UM Financial says that they buy the house and sell it. They calculate the profit on five year term on given loan, afterwards they will calculate the profit again on the remaining loan. I would appreciate if you could visit their website "www.umfinancial.com" and let me know whether their home financing loan offer is Sharee'ah compliance or not? I sincerely appreciate your help and guidance.

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Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.

 

If this company buys the house on its name and then sells it back to you with the facility of paying by installments, then there is no harm on this. This kind of trading is known nowadays by the Arabic Islamic term 'Muraabaha', meaning purchasing any goods and selling them to a third party with a profit. However, if the company does not principally buy the house but gives you its price or pays the price to the landlord instead of you and considers this as a loan and then calculates thereof forbidden interests, then it is not permissible for you to buy this house with this method. You may directly contact the company itself in order to find out the facts about the nature of the transaction.

Allaah Knows best.