Dear Hadi,
When I first bought my house, I didn't understand the issue surrounding Riba. I don't make enough to pay the balance on my home outright. I feel it would be really difficult to move because rent would cost more than my current monthly mortgage payment. I don't know what to do. It really bothers me. What are some practical solutions for dealing with this issue in the WEST?
Dear Worried Homeowner,
Let us begin by stressing that the purpose of our column is not to give fatwas, but general advice.
The topic of riba is very specialized and nuanced, with considerations of riba as it is mentioned in the Quran, as it is defined in multiple hadiths, and as it was practiced by the pre-Islamic Arabs during the period of jahiliyyah. There are various view points on whether it refers to any sort of interest, or only to usury (excessive interest which gouges those in need).
However, the topic that you raised is extremely significant, in that Muslims living in the United States need to grapple with the issue of buying homes, and whether they can take loans from a bank. It sounds from your question that you are assuming that getting a mortgage loan from a bank constitutes riba. We actually do not agree, and God knows best.
We base our opinions on those of the late economist and Islamic scholar, Dr. Mahmoud Abu-Saud. These opinions are from a booklet titled Contemporary Economic Issues: Views of a Muslim Scholar, published by the Islamic Center of Southern California in 1985.
In his section on financing real estate, Dr. Abu-Saud states “there is an obvious need for most Muslims, living in this country to buy houses, either because it is more economical to buy them than to rent or because they find it difficult to find a house that would accommodate a big family at an affordable rent." This seems to be precisely your situation.
To summarize a lengthy argument, Dr. Abu-Saud finds that borrowing money from a bank to buy a house is in general permissible, and does not constitute riba. This is based on the notion that “selling goods on term at higher prices than the cash prices is allowed in Islam."
Let us be very clear about this point, since it seems to be something that people often misunderstand. Assume that you are interested in buying a certain object, which has a specified cash price. However, you may not have the money now, or may not want to pay the money now. You can take the object and agree with the seller that you will pay him later, but a higher price. This is considered definitively allowed in Islam, because you, as the buyer, will defer the payment for the object until later, but will begin enjoying its utility now. Therefore, the seller also needs to be compensated since he will give up the object without getting any money immediately.
Dr. Abu-Saud feels that buying a house with installments paid over a long mortgage period (which end up being higher in total than the cash price of the house), is analogous to the above permissible transaction. He analyzes various scenarios, and his final conclusion is, “as long as there is need for the house, and as long as the money is for the purchase of this needed house, and as long as the bank is replacing the seller in financing the term (i.e., in accepting a higher future value than the present cash value), then the transaction is permissible."
Therefore, we feel that for Muslims living in the United States, it is acceptable and reasonable to buy houses in the conventional fashion with a bank loan, and that this does not constitute riba, and God knows best. However, we note that Dr. Abu-Saud makes a distinction between a home purchased with a mortgage that you will be living in (allowed) versus one that is purchased for investment purposes (which Dr. Abu Saud finds questionable).
Please know that if you are uncomfortable with the idea of maintaining a mortgage, there are Islamic banking alternatives such as American Finance House Lariba and others which you can explore online.
In peace.