Islamic home financing expanding in the U.S., opening doors for Muslim homebuyers

For Sophie Mutamuliza, buying a house has been a long-term goal for her and her husband since they moved to Maine from Rwanda nearly a decade ago.

“It’s been our dream,” she said. “It’s been our dream since back home.”

But they are observant Muslims and abide by a religious prohibition against paying interest as it’s seen as financial exploitation.

Mutamuliza said she looked for local institutions to work with, but at first couldn’t find any.

She and her husband even started thinking about a move to a state where Islamic home finance is more accessible. But Mutamuliza said she didn’t want to leave Maine.

“We feel like we know the place. But again, thinking about leaving it, was a little bit frustrating,” she said.

Homeownership has historically been one of the most reliable ways for families to build wealth in this country. But for many observant Muslims, including Mutamuliza and her family, the path to homeownership is complicated, because paying interest — like you would in a conventional mortgage — goes against Islamic rules governing finance. Now, more institutions are offering Islamic financing to meet what they see as growing demand.

Islamic mortgage solutions are already more common in some states. And they often end up costing about the same as conventional home loans. The difference is in the structure.

Hussam Qutub is with Guidance Residential, an Islamic home financing institution based in Virginia.

He said one model is when the buyer and the financier purchase a property together. In that sense, Qutub said companies like his are not lenders. They’re co-owners.

“And that’s the cornerstone of Islamic finance,” Qutub said. “Actually having the financing institution own the property with you.”

The buyer then pays back the financier’s share over time. Instead of interest, the buyer pays an added fee for exclusive use of the property. Qutub said for his company, that fee is based on prevailing interest rates. 

There’s no easy way to track the total value of Islamic mortgages in the U.S. But Qutub said demand is rising. 

“Our average annual growth rate on that over the last 20 years has been roughly 12.2%,” he said.

And in Maine, where Mutamuliza lives, a bank called Androscoggin saw unmet demand for Islamic mortgages — especially as the state’s Muslim community grew. Androscoggin Bank President and CEO Neil Kiely said many Muslim families were stuck in rental units.

“So they don’t get the economic empowerment that comes from building equity in their own home, which can have a generational impact,” Kiely said.

After months of research, late last year the bank became the state’s first to offer Islamic mortgage solutions.

Sophie Mutamuliza and her family were some of the first clients. In January, they bought a home in a small town about 30 minutes from Portland.

After nearly leaving Maine, Mutamuliza said she now feels more at home than ever.

“Now we felt, now we are here, no moving back,” she said.

Mutamuliza and her husband are now planning to renovate a free standing garage in the backyard. They might turn it into a guest apartment, or rent it out.