How does an Islamic mortgage work?

The three main models

• Diminishing partnership (musharaka with ijara): you and the provider buy the home together, say 20% you and 80% them. Each month you pay rent on their share plus an amount to buy more of it. As your share grows, your rent falls. This is the most common model in the UK and US.
• Lease to own (ijara): the provider owns the home and leases it to you; your payments include rent plus capital, and ownership transfers at the end.
• Cost-plus sale (murabaha): the provider buys the home and sells it to you at a fixed higher price, paid in installments. The total never changes, even if you pay late.

Why these count as halal, and the scholarly debate around them, is explained in Can I have a mortgage as a Muslim? The key idea is in the Quran:

Step by step

1. Check eligibility: the provider looks at income, credit history and deposit, much like a normal lender. Deposits are often 10-20% or more.
2. Get an agreement in principle, then find a property.
3. Valuation and legal work: a solicitor or attorney who knows Islamic finance helps, since the contracts are different.
4. Completion: the provider buys its share or the whole home; you move in and start monthly payments.
5. Buyout: over the term (or faster, if you overpay), you buy the provider's share until you own 100%.

How costs compare

Islamic home finance is often a bit more expensive than the cheapest conventional mortgages, with fewer providers and sometimes higher fees. Rent rates are usually set with reference to market benchmarks, which critics point out. Scholars who approve these products say the contract structure, risk sharing and asset ownership are what matter, not whether the monthly number looks similar.

What to ask a provider

• Which model do you use, and who is on your Shariah board?
• How is the rent calculated, and how often can it change?
• What are the arrangement, valuation and legal fees?
• Can I make extra payments or buy out early without penalties?
• Who is responsible for major repairs and buildings insurance?
• What happens if I miss a payment? Do late fees go to charity?

In the UK, a handful of banks and specialist providers offer home purchase plans; in the US, there are a few nationwide providers and some local credit unions. Compare at least two.