FAQ About Ijaraloans

General Questions about IJARA

Question: Are IJARA™ programs open only to Muslims?
IJARA™: No. IJARA™ programs provide a financial advantage to any consumer. SAMAD and its partners are committed to Islamic values and Sharia’a, and believe these are beneficial to all.

Question: How do you know an Islamic loan method or contract is Sharia’a compliant?
IJARA™: This is important. We recommend you look to the Sharia’a scholars who have an expertise in financial and commercial transactions. For instance, does your provider of an Islamic finance service have a fatwa or relevant supporting opinions? Can your provider point you in the direction of a knowledgeable resource person or text, someone or a resource to approach in person, by mail, or online?
 
Question: If I still have questions after reading this or other IJARA™ related literature, can my lawyer or I go over the documents in order to be more clear about the system that makes our contract halal?
IJARA™: If you wish to read the primary documents individually, we will send a Non-Disclosure Agreement you can sign before we forward the files about your Islamic loan. The document is not to be given to third parties, banks, people who might wish to go into this business, competitors, or dealt with in a way that would accidentally allow these types of people to acquire our proprietary material without making the research and expense that we have, let alone share our concern for Sharia’a compliance.
 
Question: How can we tell whether a company has a valid fatwa?                      
IJARA™: A copy will have the names of the approving scholars and their signatures. If they are unknown to you, you should be able to verify their relevant training and capacity to opine on various matters relating to Islam and Islamic finance.
 
Question: How can we know if the scholars providing the fatwa are qualified?
IJARA™: Certain scholars are well known and their certificates or ijazas are
publicized. Others may be qualified, but less well known. Asking for their bio data, ijazas, or other information will help you have comfort in their opinions.
 
 
 
Questions About the IJARA™ Process (Mortgage Alternatives)
 
Question: What happens if I sell the house? For example, after 5 years I intend to buy another house and sell this one which was worth $400,000 when I bought it and now after six years is worth $500,000. How much of that money will I get?                        
IJARA™: The profit from the sale of the home and the principle reduction of the loan are all to the customer’s benefit.  If, for example, the original loan amount was $360,000 and the balance after 5 years is $330,000, then the difference between the sale price of $500,000 less the $330,000, or $170,000, belongs to the customer.  The only amount due to be paid back is the remaining balance.  Our Islamic loan transaction is specifically structured so that the customer is entitled to 100% of the gain under the Sharia’a.
 
Question: Most people who have low down payments need something called private mortgage insurance. How do you deal with this?
IJARA™: The IJARA™ mortgage alternative does not use standard PMI. Yet, no investors will support either traditional mortgages or mortgage alternatives without some form of support. Therefore, certain IJARA™ Islamic finance providers have structured an approach that complies with Sharia’a in the consumer transaction and provides the protection that investors require. In some cases, the financing shall be structured in such a manner as to avoid PMI.
 
Question: What do I do about the interest that state laws require to be paid to me on certain accounts including escrow accounts?
IJARA™: IJARA™ providers are obliged by law to make these payments to you. The consensus of the scholars is you should pay such interest earned to charity, but it will not count as either zakat or sadaqat.
 
Question: What is rent based on in an IJARA™ transaction?
IJARA™: Each IJARA™ provider has a different approach to this issue and there is more than one way of doing it. The general Sharia’a principle is rent rates should be mutually agreed by both parties. In some cases, the provider may use a standard interest oriented benchmark. At this time, the consensus of the Sharia’a scholars is that such benchmarking is not ideal, but it does not affect the basis of the transaction.
 
Question: What happens if I do not make my payments on time?
IJARA™: You will be charged the collection cost. We currently work with a
company called Ijara Payment Processing, Inc. to manage the completed IJARA™ acquisitions. They bill $50.00 for this service. Any excess over the cost of collection will be donated to charity.
 
Question: What is the minimum down payment in the IJARA™ Islamic loan program?
IJARA™: The minimum down payment, called the initial payment on account because of the structure of the IJARA™ program, is 5%.  In some cases, 0% is possible, but in all cases where the down payment is less than 20%, the consumer will sign an agreement that cancels the sharing of any loss by the Ijara™ provider.
 
Question: May I use down payment assistance programs?
IJARA™: IJARA™ providers currently permit the use of various down payment
assistance programs where at least 3% of the cash to fund your initial payment on account is presented.
 
Question: Do your providers refinance existing mortgages?
IJARA™: The IJARA™ process may be used to replace an existing mortgage using Islamic finance guidelines.
 
Question: Some people say that in both the Islamic and the traditional mortgage systems, payment of the house is made based on the future
value of the house brought down to the present day plus a rent for staying there. In other words, nobody will let you stay in the house for free.
IJARA™: This is not correct. In the traditional mortgage, interest is the “rent” of money and is paid for a loan of money with which you buy a house or refinance an existing loan. There is no rent of the house as you own the house. In two of the Sharia’a methods, you rent a house and the lease payment represents your enjoyment of real property.
 
Question: Isn’t the Islamic system’s name for interest rent? Aren’t you just changing the word interest to profit or rent?
IJARA™: There are three acceptable approaches to home acquisition in Islam. One is a sale, one is rent to own (the IJARA™ method) and one is partnership (with property rental as part of the process). The rent paid is explicitly for the use of property. Or in the sales case, the profit is a mark-up on a base sales price. Riba, however, is the payment of money for the use of money over time, and this is very similar to the concept of interest in a traditional mortgage loan.
An accountant may argue rent in the latter two and profit in the former is interest, but in none of these cases is it Riba. Some may argue anything that may be perceived as generating a benefit from the passage of time has interest in it. The Sharia’a scholars have not defined Riba in this way. Rather Riba necessarily relates to loans of money or exchanges of money like commodities when they are used as money.
 
Question: Doesn’t the Islamic loan system of purchasing houses use the same mechanics as the traditional mortgage system only with different labeling?
IJARA™: This too is inaccurate. The process of qualifying a consumer and disclosing costs and risks is the same as the mortgage system. This process is regulated by federal and state statutes in the United States. Hence, the paperwork is the same or very similar prior to and after making the acquisition, but not the acquisition itself.
The acquisition mechanics are fundamentally different and create all of the same rights and obligations as in a traditional mortgage. Hence, it is not a question of labeling, but of actual structure.

Question: Someone told me the papers one signs to apply for and process a purchase with an Islamic finance mortgage alternative are the same as in the traditional mortgage system. Why?
IJARA™: The documents one signs, which should normally be customized to reflect the facts of an IJARA™ or other mortgage alternative, including the application, disclosures, and post closing disclosure documents are mostly governed by federal and state rules. Generally, the government wishes to assure you are fully aware of the details of a transaction and can compare it to other transactions of a similar nature. These materials do not constitute the contract that binds you, the house and the bank or other parties involved.
 
Question: How does a IJARA™ replacement compare to a standard mortgage refinancing?
IJARA™: Generally, the nature of a replacement is distinct from a refinancing, and the title will transfer from a current borrower owner to a trust which will own the home for the benefit of the new investor.
 
Question: What happens if I am short of cash for closing costs?
IJARA™: Depending upon the investment for which you qualified, amounts, other than the 5% of the expected final purchase value may be structured into the value of the Promise to Purchase.
 
Question: What legal paperwork will we be signing with Ijara?  Could you kindly email us a copy of the contract/agreement/terms of service?
IJARA™: There is a trust agreement and a lease and promise to purchase. We will forward copies to you upon receiving a signed NDA.
 
Question: What is ACH?
IJARA™: In the US, ACH, or Automated Clearing House and it’s counterpart in Canada, EFT, Electronic Funds Transfer, is basically an electronic payment from your checking account.
 
Question: Will they be routing our monthly payments? Is it taken directly from our bank account?  
IJARA™: Yes. Monthly payments are automatically deducted from your checking account.
 
Question: Is the conversion fee the only amount that Ijara will be paid? Are there any monthly/quarterly or annual charges with this kind of Islamic finance method?
IJARA™: In addition to the closing/conversion fee, there is a $20 per month Admin fee in every transaction.
 
Question: Your website is thorough and provides lots of information. However, I was not able to find much on the conversion program. Can you please share any documentation you have on the Islamic viability of this conversion program?
IJARA™: The exact process of conversion is proprietary; we are the only company to have figured out the conversion method, so we do not share the exact process with anyone.  As far as the Islamic viability, you basically end up in a Sharia Compliant Ijara transaction.
 
Question: Who will make the contact with our bank for the transfer?  What paperwork will be exchanged between Ijara and our bank?  How will we be involved in this process?
IJARA™: The exact process of conversion is proprietary; we will make all necessary contacts and make necessary arrangements.  After signing conversion documents, your involvement will be minimal.
 
Question: The list below refers to "next payment coupon."  We do not get coupons.  It is all electronic. 
IJARA™: We will need to know the exact balance you have currently, and the account number, along with payment address etc. so that we can locate the proper account.