A group of bay area investors has figured out how to buy a home without paying interest. They are using an Islamic banking system that follows religious principles laid down more than one thousand years ago and it protects them against swings in the housing market that have forced many people into foreclosure.
In 1996, a group of Muslims in Santa Clara got together and formed the country's first Islamic real estate investment trust. The trust is called Ameen Housing Cooperative and it strictly follows Shariah Law, the Islamic system of justice.
The main concern in Islamic banking is avoiding interest, or "usury". For many Muslims, that's as simple as paying off credit card balances every month to avoid a finance charge.
A thousand years ago, Muslim religious leaders railed against the idea of paying interest and against the rich who made their fortunes by charging it. Christians, Jews and Buddhists before had the same ideas.
"There are a couple of basic verses in the Quran that categorically prohibit usury. A verse in the Quran, says: 'all who believe, fear Allah, and do away with usury if you are indeed believers. If you do not, take notice of war from Allah and his messenger'," says Humayun Sohel, Director, Ameen Housing Cooperative.
Buying a home is the greatest expense most people will ever have and doing it without interest is almost impossible.
Ameen Housing offers a way to make it happen. The housing cooperative gathers a pool of money from Muslim investors, usually identified through local mosques. With that cash, and a thirty percent down payment from a home buyer, the co-op buys the title to a home.
The home buyer pays a fair, monthly rent to the cooperative, plus a small administrative fee. It's similar to a lease-to-own contract, and the home buyer ultimately buys out Ameen's part of the investment.
When that happens, the value of the home is reassessed at fair market value, and the appreciation on the home becomes profit for the original investors. (MORE)