Home Owners- Would you consider this?

[chimomma]

Would any of you selling your home consider doing "seller financing"? What I mean by that is would you agree to accept the payment for your home in installment payments paid each month for 5-15yrs? You would probably have to take the money the buyer pays you and pay it directly to the bank to pay off the mortage if you don't own the house outright. Of course all of this would be worked out with lawyers and legal contracts to protect all parties.

The reason I am asking is because I want to try to do this and am wondering how well that would go over with home owners. I have had some people agree and heard of people doing it mostly with homes in the lower price range. We can't get a traditional loan not because of bad credit or low income, but because our religion for bids transations involving interest whether it is to be paid or recieved. So if some one came to you and told you that, would you consider it? Does it just sounds too crazy, complicated, not worth it? What factors would make you more likely to accept? A bigger down payment, great credit, like/trust the people, offer you more than asking price?

Now that we have a healthy income and a little saved for a small down payment I so really want to buy a house. The problem being we live in a big city and a single family home is so expensive to save up for. We might be able to do a condo, but you know the dream of the house, yard, garden, gargage.....

[chimomma]

More Info from other thread I was hijacking.....


We are Muslims. We got some credit by having credit cards and paying off the balance in full each month and some of the utility bills go on our credit report. I also own a business which involves leasing equipment and what not. Islamic banks usually don't even consider credit considering observant Muslims usually don't have a lot. They consider mostly income and length of employment.

There are Islamic loans available which base their fees off current mortage rates from a traditional instituion so it does seem like interest with a different name. The contract is different and they have different ways of justifying charging the extra money some of which are also Islamically questionable. We got a contract from one of these Islamic banks and sent it to a Muslim scholar for review, but we still would like to avoid these types of loans because they are so expensive.

There is a website in which a Muslim man explanins how he bought a house with out paying any interest or going above the asking price. He explains how here http://www.halalbucks.com/2008/06/19...hout-interest/ He also wrote a e book. It would be worth trying even if you are not Muslims because when you buy a house you pay about half the money to the bank, so it is like doubling the purchase price.

I can understand how the seller would think "what's in it for me?" I guess sometimes if that was the only hope for selling, they might accept or also if they are facing foreclosure and would like to avoid trashing their credit. Another thing I would be willing to do is offer 30, 50, or 75% more than the asking price. That would probably sweeten the deal, right? So instead of paying interest to a bank, we could just give the seller most of the money.

The other thing is that we would try to pay off the entire thing as fast as possible. The houses in our area are more expensive, but lets just take the example even if the house was $200,000 we would pay $2,500- 5,000 each month to get it paid off. If that was the price of the place, we would probably have it paid off in five years, but I extended that because for us to get a house we wanted to settle in in our area it is $400k+. I suppose we should get a condo and sell that before going for what we really want, but I can dream, right?

The other issue about the legal difficultly is complicated. It is true that some bank contracts are "due upon sale" and need to be paid before title transfer. Muslims are also not allowed to sell something they don't own so there is no real need for them to hold the title until the thing was paid off entirely. One thing I would think of as a protection is making the seller provide proof that the money is going to the bank until their loan with the bank is paid off. And then on the sellers side they could tkae back the house if we stopped making payments.

I hope that clarified things.

[AllyRae]

In this environment of foreclosures, I'd absolutely not consider doing it unless I knew someone personally. Sorry...I'm sure that is not the answer you'd want. The reason I wouldn't is that when we sold our house, we still owed to the bank. When we sold, we bought another house. If you would have bought our first house on owner financing, and then foreclosed, I'd then be stuck with two mortgages. Your credit would likely not be hurt but mine would be trashed since I can't pay two mortgages, kwim?

In a case where you're buying a house that does not currently have a mortgage attached and there were some serious lawyers involved, I guess it would work. But for me personally, I wouldn't agree to it.

[nd_deadhead]

I'm not even remotely familiar with Islamic law, so please forgive me if my questions are stupid or offensive. I can't help being stupid; I sincerely don't want to offend.

I'm having trouble understanding how one can borrow money without paying interest? The only time I've done this is when I borrowed from my parents - and even then, I wanted to pay interest but they wouldn't let me.

If you pay someone far more than the asking price for a house, and pay over time, isn't that essentially the same as paying interest, but with a different name?

It seems to me (and please understand that this is coming from the perspective of knowing NOTHIING about your laws, just going by what you've written), that the only way for you to buy a house would be to pay for it outright.

Do you mind if I ask another dumb question? I'm curious about this - and please understand that I do not intend any criticism or judgement. If you are forbidden from earning interest, that sounds to me like you do not invest in a savings account, a money market certificate, things like that. But what about dividends? Can you invest in the stock market, since money earned is in the form of dividends instead of interest?

And if dividends are not OK either, what about selling a house for more than you paid for it? Let's say you bought a house 20 years ago (for cash), and it has doubled in value. Isn't that the same as an investment?

Back to your original question - I doubt too many buyers would be willing to accept the risk, even if you were offering a lot more than the house was worth, but there may be some out there. I think you would have a hard time finding someone willing to a) assume the risk; b) accept delayed payment; and c) have a house that you are willing to buy. But I also have seen some pretty amazing things, so I would rule it out completely!

Best wishes to you in finding something that works for yuo!

[BarefootScientist]

Originally Posted by nd_deadhead

If you pay someone far more than the asking price for a house, and pay over time, isn't that essentially the same as paying interest, but with a different name?

That's what I thought. I really do not want to be offensive or criticize anyone's religious convictions either, as I said in the other thread, but it seems like a really fine line. I think if I was religiously opposed to earning or paying interest, that would not sit right with me. But that's just me personally.

With the additional information you've provided, I think in the right situation I might consider it. I would almost have to know you on some level and trust you though, you know?

I really hope you work it out! Maybe if you save for a few more years, you could find a house or even a townhouse or something with garage and yard that you buy outright, maybe in a slightly less expensive area of town? I don't know but I wish you the best! I'm going to check out that link too, this is fascinating.

ETA: the link seems broken.

[chimomma]

Originally Posted by nd_deadhead

I'm not even remotely familiar with Islamic law, so please forgive me if my questions are stupid or offensive. I can't help being stupid; I sincerely don't want to offend.

I'm having trouble understanding how one can borrow money without paying interest? The only time I've done this is when I borrowed from my parents - and even then, I wanted to pay interest but they wouldn't let me.

If you pay someone far more than the asking price for a house, and pay over time, isn't that essentially the same as paying interest, but with a different name?

It seems to me (and please understand that this is coming from the perspective of knowing NOTHIING about your laws, just going by what you've written), that the only way for you to buy a house would be to pay for it outright.

Do you mind if I ask another dumb question? I'm curious about this - and please understand that I do not intend any criticism or judgement. If you are forbidden from earning interest, that sounds to me like you do not invest in a savings account, a money market certificate, things like that. But what about dividends? Can you invest in the stock market, since money earned is in the form of dividends instead of interest?

And if dividends are not OK either, what about selling a house for more than you paid for it? Let's say you bought a house 20 years ago (for cash), and it has doubled in value. Isn't that the same as an investment?

Back to your original question - I doubt too many buyers would be willing to accept the risk, even if you were offering a lot more than the house was worth, but there may be some out there. I think you would have a hard time finding someone willing to a) assume the risk; b) accept delayed payment; and c) have a house that you are willing to buy. But I also have seen some pretty amazing things, so I would rule it out completely!

Best wishes to you in finding something that works for yuo!

I am not offended by your questions. I know I often think similar things when I hear about the actions and rulings of people in other faiths. So I guess it is better to ask then to not ask.

Let me start off by saying that I am not well versed in Islamic economics and banking in its details. I will answer as best I can with the basic ideas according to my understanding but understand that there maybe be a lot more to it, there are details to it that I don't know about.

When it comes to the issue of interest vs. increasing the asking price because of delayed payment, there is a key difference. Interest is a RATE and the amount of interest you pay is DEPENANT on the amount of TIME it takes you to pay off the loan. If I told you I will pay you X amount for a house, I have to pay you that amount regardless if I pay it off in 5 months, 5 years, 25 years, the amount I pay you remains the same.

To take another example lets say you want to buy a car but don't have the money and I do. You could come to me and say, I want to buy this car, but need to pay installments since I don't have the money right now. Then I could go by that car from the dealer paying cash and turn around and sell it to you for a higher price. It is not interest because the price I sell it for you will be the same no matter if you pay it off tomorrow, 5 years, 10 years. It will never increase if you take longer or decrease if you take less time.

Do you see the difference in that? This way takes less advantage of people because you see the full amount and agree upfront. With interest, if you get into a situation and can’t pay, the amount you owe keeps increasing until it can be way more than the original amount you borrowed.

In terms of selling something for more then you bought it for, this is permitted. This is how trade and many businesses works. Business, trade, and making money is permissible for us, just not charging a fixed rate for loaning money.

On a personal level within the Islamic community it is very common for people to borrow money from each other for free with out any interest involved and with out any real guarantee that it will be paid back. I guess you will say it is the honor system. If you have a good reputation, people will trust that you will pay it back when you can. In our religion it is also encouraged to forgive repayment of a loan if the person does not have much money or is unable to repay it. But we also have a right to ask for repayment. There is no monetary benefit in this, but it is part of our view that Muslims are all one brotherhood and we should help and support each other.

On an institutional level, this makes no sense, so there are Islamic banks who offer loans at a coast. The way they do it is usually by treating their “loan” as an investment. So for example, I need a business loan. A bank could give me money with the idea that I am taking their money and making money off it. Because of that, they deserve some of the money I made from it. Another way they provide house loans is by purchasing the house on behalf of the person buying it, then charging them to live in it (“rent” payments) while the buyers also pays installments to the bank to buy the house from them. This is a questionable practice because in Islam, we are not allowed to enter into to different contracts involving the same transaction. So many people are not comfortable with the idea of renting a house while buying that same house at the same time.

You are right that we cannot have savings accounts, bonds, or other interest based investments. We can invest in stocks and receive dividends because that is not an interest payment, it is money paid in accordance with the growth of a company in which you are a partial owner. Muslims also can do commodities trading. Another factor we consider when investing in stocks or the like is whether the company is involved in something forbidden for us. For example we are forbidden to drink alcohol and we are also forbidden to transport it, sell it, or support its use in anyway. There for when we invest we could not invest in a company that produces alcohol. For this reason they make special Islamic mutual funds that are stocks in several companies that do not engage in anything forbidden to us. I know some non Muslims who also invest in these because they tend to perform better.

I hope that answered your question. If you still want more clarification, let me know and I can try to find more info. There is information about Islamic investment opportunities and ways to make money at the website www.halalbucks.com

Barefootedscientist, that is the same website that links to the story about the guy who bought a house with out interest. Actually it is his website. If you go to the home page you can fish around and find it there if the other link doesn't work.

[nd_deadhead]

Thank you so much for taking the time to answer my questions! Your answer was very informative.

I feel guilty for not knowing nearly as much about other cultures and other faiths as I should.

[karne]

I can't quite wrap my head around this, even with your detailed explanations-I'm sorry. It seems like splitting hairs, but that's not your issue. Regarding your question, I wouldn't do it because my home represents a huge investment. To sell it without guarantee that the loan would be repaid seems foolish. I understand legal contracts, but quite honestly, what would prevent you from walking away and us having to assume court and lawyers fees to see the loan re-paid? (not saying you would do this-just an example).

I don't want to sound offensive, but is there a community of which you are part that has buy/sell arrangements such as those you want to enagage in? It seems, like others have said, that there would need to be a good amount of familiarity to make something like this feel acceptable.

[EFmom]

No, I wouldn't for the reason karne stated. In addition, I would need the proceeds from the sale to put down on another house.

As a seller, I'd see absolutely no upside to this unless you were paying hugely more than the asking price, but I'd still have the above problems.

[Apple Girl]

I'd do it, but I'd probably want close to twice the value of my house, along with a hefty downpayment, to make it worth it. Also, it would be contingent on me being able to get financing for the new house that we'd be buying... which may not happen, as a bank would see me owing two mortgages and not having very much money to put down on a new house.

[AAK]

Our mortgage paperwork specifically states that this is not an option. They would have to release their position on the title in order for ownership to transfer. Simply put, they won't . Therefore, it isn't an option. If, however, I owned the home outright, I might consider it. But, I would make sure that my name was on the title like the banks is. Meaning that I can repossess the house if default occurred, that the new owner couldn't sell without paying the balance in full at closing, etc.

I would not do it without collecting a sizable down payment and interest or (in your case) an amount well above the asking price.

Amy

[SoulCakes]

My stepdad did an owner carry loan when he sold one of his houses. It's not unheard of, but usually the sellers a) have gotten pretty desperate b) don't need the house paid off before they can buy another and c) require a massive downpayment. Usually interest is also involved, but raising the asking price as you suggested could amount to the same thing.

I think there are some websites that could help you find owner-carry properties in your area. Craigslist is a good place to start.

[colsxjack]

Very interesting. I did not know that practicing Muslims could not pay interest.

Could you find out how other practicing Muslims have bought homes? Both here and abroad? Maybe you can find out some interesting arrangements that have been dealt?!

[SleeplessMommy]

You are suggesting a multi-year "lease/purchase agreement". It is hard to get real estate agents to work with these as they generally get commission when title transfers.

The buyer risk is HUGE. When you buy a house, you want to receive title to the house. Otherwise, you are basically paying to maintain and improve someone else's house. (In addition, if you are "leasing/buying" a house, you have no idea if the owner is making mortgage payments, tax payments, or insurance payments. The house could be lost to foreclosure very easily in the current market, as others have said.)

I know someone whose parents sold the same house over and over again on "land contract". This was in NM where this is more common. They would find a buyer, the buyer would make "purchase" payments for a few years, then realize the futility and walk away. Free from the current "land contract", they would find another buyer. No buyer ever got enough equity to take title and own or re-sell the house.

I can think of 3 options for you:
* save money until you have enough to buy a house outright
* see if you qualify for Habitat for Humanity (zero interest rate loans)
* talk with a local Islamic real estate agent. They may have access to some complicated lease/purchase financing, which would pair an Islamic investor with a home buyer. I expect this to be more expensive than conventional financing.

And to answer your question directly, if I sold my house through a 15 year lease/purchase agreement, I would need a 20% + down payment.

[cristeen]

I would do it, with certain provisos.

The property would have to be free and clear.
There would have to be some sort of transfer of title involved. In my state, I've seen these when I worked in the industry. Either land contracts or rent-to-own contracts where the title is technically transferred, but the document records the seller's continued interest.
All payments would have to be handled/recorded through a neutral 3rd party. This makes it impossible for one party to claim payments made/not made.

I'm sure there are other things that would help protect both parties, but that's just off the top of my head.

Before this economic situation, "seller financing available" was not that uncommon to see in ads (not common, but not absent). Right now though, I don't know that you'll find many people interested.

[Alyantavid]

No. Honestly, when I sell my house, I want it sold, I don't want to be dealing with years on down the road. And with the foreclosure rate/unemployment rate what it is right, it's just too risky for me.

[texmati]

no. I do have muslim friends who have payed of their homes very quickly, or bought much smaller homes for cash in low COL areas. We live in texas, so it is possible to get nice homes in nice areas for relatively less money.

[Ola_]

I wouldn't consider it as an option unless there were no others, but then I do tend to be pretty risk-averse when it comes to money.

[zoebird]

i would not do it.

[chimomma]

OP here-

Thanks for all of your imput and response. I did expect more people to be open to the idea, but I understand it may have a lot of inconveince and risk.

The person who mentioned getting a 3rd party involved had a good idea and that got me thinking.

What if there was a third party which held the title and the title would remain either with the seller or transfered to the buyer depending on how the mortage contract was with the bank (if there was a due upon sale clause). Then the buyer would put down a down payment big enough to pay the real estate agents and give the seller some money to use as a down payment for their new home. Then the buyer would pay a monthly instalment that far exceeded the amount of the seller's mortage payment. This money would all be paid to the 3rd party which would use some of it to pay off the mortage payment, some of it to create a "cushion" fund incase the buyer missed some payments, and the rest of it would be sent to the seller. Once to cushion fund (let's say $10,000 dollars or so) was established all the extra money after the mortage payment would be sent directly to the seller. And after the mortage was paid off all the money would go to the seller and title could transfere to buyer.

For example, let's say the mortage payment one the house is $1000 a month. The buyer could agree to pay $3000 a month. $1000 goes to pay off the mortage each month, $1000 goes into a cushion fund until that is full, and $1000 goes to the seller. Of course this ratio can be adjusted according to the seller's comfort.

In this situation, the seller would not have to deal with the house and payments anymore and would just recieve checks in the mail each month. There would also be a fund to cover several missed payments providing more security against foreclosure. Would that make you feel more comfortable?

I suppose that doesn't solve the issue of being able to get credit for a new house, though.

What about if you were facing foreclosure? Would you then consider this? I have seen many houses in "pre foreclore" so it seems they have nothing to loose, right?

What if your house has been on the market several months with out much interest? Would you then consider?