Firms Offer Muslims Alternatives To Mortgages One segment of the home finance industry is thriving: Islamic finance companies. The companies help Muslims buy homes without violating Islam's ban on charging interest.

Firms Offer Muslims Alternatives To Mortgages

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Now, from unscrupulous lenders to home finance that follows religious principles. Islamic finance firms in the U.S. work with customers to help them buy homes without compromising Islamic values. As NPR's Jamie Tarabay reports, the firm's conservative approach to finance has kept them and their customers clear of the subprime drama.

JAMIE TARABAY: Khalid Aqbal's brand new condo sits in one corner of a quiet leafy square in a Northern Virginia suburb. He's 62, and it's the first home he's bought in the U.S. since moving here from Canada. Some of his neighbors are under foreclosure, but that's not happening to Aqbal because he didn't take out a high-risk loan.

Mr. KHALID AQBAL (Homeowner): I've always bought everything, all the big things on Islamic financing or make sure I'm - actually, my wife makes sure I pay all my bills on time so that there's no interest in all of that and everything.

TARABAY: Here's how it works. Islam forbids charging interest in the belief it exploits people, but making money off actual goods is okay. So Aqbal worked with an Islamic finance company to borrow the $300,000 condo he shares with his wife. He put up 30 grand, they put in the rest. And instead of paying a mortgage, Aqbal will pay rent until eventually he buys the company out of its share. The company charges a fee for Aqbal's exclusive use of the house, but considers that profit not interest. It'll end up costing practically the same as a mortgage but the methodology is what's different.

Mr. HUSSAM QUTUB (Director of Communications, Guidance Financial Group): You have essentially the same type of product.

TARABAY: Hussam Qutub is from Guidance Financial, one of these Islamic finance firms. He uses the analogy of a potato chip fried in pig fat and one fried in something more acceptable to people who don't eat pork.

Mr. QUTUB: It's a potato chip. The difference is the method on which they produce this product. The cost of those two potato chips potentially could be the same on the shelf at the grocery store.

TARABAY: Some of the Islamic financial groups have been around in the U.S. since the beginning of this decade. Qutub says his company initially focused on the most devout Muslims. Now, his group closes, on average, 100 contracts a month. But they're very careful about who they do business with. Potential buyers need to give more upfront, have a good credit score and savings.

Mr. QUTUB: If that customer cannot qualify for a home, then that person should wait. And we do turn away, you know, a number of folks because of that. We've always been, like I said, very conservative in our criteria for qualification.

TARABAY: Qutub says business is up 13 percent in the first half of this year. The Islamic finance industry itself is rather small - between two and three billion dollars a year. That's a drop in the bucket, says mortgage finance expert, Guy Cecala. He says the market for alternatives to traditional lenders is growing.

Mr. GUY CECALA (CEO, Inside Mortgage Finance Publications): The traditional mortgage market as we know it is on its knees. So a lot of individuals who want to buy a home now or whatever are going to have to look to some of these more locally based lending sources.

TARABAY: In Khalid Aqbal's Virginia condo, two-year-old granddaughter, Asia, is ready for a nap. And Aqbal says he sleeps easily, too, knowing he hasn't violated the principles of his faith to buy his home.

Mr. AQBAL: As far as I'm concerned, I'm very happy that I took this step in the way that I did it, and I sleep well.

TARABAY: Jamie Tarabay, NPR News.

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