Is it permissible to purchase a house if the seller and the lender are the same entity?

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Below, please take a look at the answer extracted from the study presented by Dr. Main Alqudah at the AMJA 16th Annual Imams’ Conference.

Second: Financing with Construction Companies Directly A property buyer finances the purchase directly through the person or entity selling it.

This often occurs when the prospective buyer cannot obtain funding through a conventional mortgage lender or is unwilling to pay the prevailing market interest rate. The seller may agree to owner financing if he or she is having difficulty selling the property. Practicing Muslims prefer this option to stay away from mortgage companies and avoid Riba.

• Owner financing in itself is allowed, however, many of the entities that offer owner financing usually have their own mortgage company, so they mortgage the property and sell the debt to a creditor or a bank to maintain a cash flow to fund other projects.

• This transaction is identical to buying a foreclosed property which will be discussed later. As long as it is proven that the owner and the lender are both one and the same, then this is not actually a loan but is referred to as such for other causes. It is an installment sale in reality. The loan agreement is a nominal contract that has no reality, thus, the transaction is permissible. Contemporary Issues Related to Buying Real Estate Dr. Main Alqudah 7 AMJA 16th Annual Imams’ Conference | Contemporary Financial Issues (Buying Real Estate and Retirement Accounts) | Mar 1st-3rd 2019 Feb 23th-25th 2018

• It is well established that “what matters in transactions is the reality and essence, not the wording and formality”.

• Even if the buyer knows that the debt will be sold to a third party, that doesn’t diminish the permissibility of this transaction. A Muslim is liable for the validity of his own dealings, not the dealings of others; no individual will carry the burden of another.