For many Muslim families, a conventional mortgage isn't an option because it involves riba — interest. Sharia-compliant home financing replaces the interest-bearing loan with a sale, partnership or lease structure, reviewed by an independent Sharia supervisory board.
SI MTG does not originate Islamic financing directly. We refer clients to Sharia-compliant home finance providers we have vetted, and help you compare offers and prepare your file.
The three main structures
1. Murabaha (cost-plus sale)
The financier buys the home and immediately sells it to you at a higher, agreed-upon price, which you pay in fixed installments. The profit is set at the start and does not change, so your payment is predictable — similar in feel to a fixed-rate loan.
2. Diminishing Musharaka (declining partnership)
You and the financier buy the home together as co-owners. Each month you pay (a) rent for using the financier's share and (b) an amount that buys more of their share. Over time your ownership grows and their share shrinks until you own the home outright. This is the structure most widely used for U.S. home purchases.
3. Ijara (lease-to-own)
The financier owns the home and leases it to you. Your payments include rent and an amount toward eventual purchase; title transfers to you at the end of the term (often called Ijara wa Iqtina).
| Murabaha | Diminishing Musharaka | Ijara | |
|---|---|---|---|
| Basis | Sale at a marked-up price | Shared ownership + rent | Lease with purchase |
| Payment | Fixed | Rent may be fixed or reset periodically | Rent may be fixed or reset periodically |
| Early payoff | Remaining price, often with a rebate | Buy out remaining share | Per the contract |
How costs compare with a conventional mortgage
The profit rate or rent on Sharia-compliant financing is usually benchmarked to market rates, so the monthly cost is often in the same range as a conventional loan, and sometimes higher. There are fewer providers, and structures may involve extra legal steps (such as a co-ownership entity holding title). Always compare the total cost over the time you expect to keep the home, not just the monthly payment.
Questions to ask any provider
- Who sits on your Sharia supervisory board, and can I see the fatwa or certification for this product?
- Which structure do you use, and who holds title during the term?
- Is my payment fixed for the full term, or does the rent reset?
- What happens if I pay off early, sell the home or miss a payment?
- What are the total upfront fees, and what is the overall cost compared with a conventional loan?
- How is the profit or rent portion reported for tax purposes? (Ask a tax professional how it applies to you.)
See the providers we work with on our Islamic Finance page, or call 510-786-8739 to talk through your options.
Frequently Asked Questions
Is a halal mortgage available in California?
Yes. Several Sharia-compliant home finance providers serve California, most commonly using a Diminishing Musharaka (declining partnership) structure. SI MTG refers clients to providers it has vetted.
What is the difference between Murabaha and Musharaka?
Murabaha is a cost-plus sale: the financier buys the home and sells it to you at a fixed, higher price paid in installments. Diminishing Musharaka is a partnership: you co-own the home and gradually buy out the financier while paying rent on their share.
Is Islamic home financing more expensive than a regular mortgage?
Pricing is usually benchmarked to market rates, so monthly costs are often similar to a conventional mortgage and sometimes higher. Compare the total cost, fees and early-payoff terms from each provider.
Want to know which option fits your situation?
Tell us a little about your scenario. No credit pull to start, and residential inquiries get a response the same business day.
Get Pre-Qualified or call 510-786-8739This article is for general educational purposes only and is not a commitment to lend or an offer of credit. Loan programs, guidelines, rates and eligibility change often and vary by lender; all loans are subject to credit approval, underwriting and property eligibility. SI MTG is a mortgage broker, not a lender. This is not tax or legal advice — consult a qualified tax professional or attorney about your situation. NMLS #300923 · CA DRE #01480904 · Equal Housing Opportunity.