Below are a list of questions that we have been asked and our answers. Please read through these items before posting a comment to assist in our collaboration in freeing ourselves from interest. Some items have been modified for this page.
Does this only work in the US?
Q: Will this work in other countries (i.e. Canada, UK, Australia, etc.)?
A: Most countries have financial systems very similar to the US, especially Western countries. We have not come across any restrictions in any other countries from using our method since it is very simple and easy and uses common contracts.
Does it have to be a buyer’s market?
Q: The real estate market is growing in my area and housing is expensive so it is hard to see how your method will work.
A: The best thing about the way we have purchased our house (and now two cars and a second house) is that it doesn’t cost anything to try. It’s as simple as sending emails. The most important thing is to trust in Allah and seek His help and He will make it easy for you. There will be those people who will be skeptical, but it is our Islamic duty to rely on Allah and try, otherwise what excuse can we present to Allah if we chose interest? We are proof that it can happen and we will make duaa’ that Allah makes it easy on you and He opens the doors of khair for you because of you intention to try.
Q: I believe that this ebook was written when realty market crashed, is this ebook information valid for today’s realty housing market?
A: See the answer above. We purchased two cars interest free, one in 2012 and another in 2013 and our second home interest free in late 2013. All in an economy that is growing.
Q: My question is, your experience took place in 2007-08, I believe, then the market was more a buyers market. Today, it seems as though it’s a seller’s market. So, I suppose my question is, are you finding that others are being successful in purchasing a home this way? Are there any new strategies that should be utilized for the current housing market?
A: Alhumdulillah we actually outgrew our first home and purchased a new home last year , again interest free. We also know of another couple who used our ebook to purchase a new home interest free, so yes although it was a buyers market at the time of our first home purchase, it was not the case for us the second time around, nor was it the case with the other family. Allah (SWT) will make a way if you are determined to do it for His sake first and foremost.
How safe is the KnowInterest method?
Q: How can you be sure that the owner who sells you the house will not change their mind about the sale a couple of years down the road and find some sort of loop hole where he/she can reposes the house, causing you to loose what you have already put into the house and make it more difficult to purchase a new house because by then housing prices would have increased further?
A: Our contract is a legal contract that was drawn up by a lawyer. There is no difference between our contract and a bank contract. The contract is very important and all details must be included in the contract to cover such things that you mentioned. We have first rights to the house. If the buyers were to do as you suggested we could take them to court etc because they are legally bound to our contract.
Q: If the owner still owes the bank, wouldn’t the bank come to me for the collection, how do I just make the deal with the owner without dealing with the bank ?
A: In the book, we describe what happened with our home in that the owner did still owe the bank and in fact most people do. The main problem is the due on sales clause that most mortgages have it. It basically says that if the home owners sell the home, they have to pay off the mortgage immediately. In our home, the sellers ended up refinancing by paying off the mortgage on the home so they were able to sell it to us. In other circumstances, other options would be:
- Not tell the bank (which you should never do and has been presented to us several times which we refused)
- Rent to own (also an option since it isn’t a sale of the house and part of the rent will go back to principle but this has not been fully researched by us and is not described in the book nor have we tried it but we’ve taken a look at it)
- If the mortgage is nearing an end or even if not, a letter can be written to the bank with references (from your bank or others) to allow them to forego the due on sales clause
- Find a seller who has the home paid off or close to paid off where your down payment will cover the payoff (there aren’t too many of these but we’ve found a few)
In the purchase of our home, our contract was filed as a security interest on the home and had a first filing so that if the sellers failed to pay their debt or were in default, we had full rights to the home and it could not be taken from the bank. We never dealt with the bank, we always sent our payments to the seller by sending a check to their bank which we think they used against their current mortgage of their new home (we weren’t a 100% sure).
Q: I have one question, as far as selecting a house, what if we find a place and the owner agrees to this arrangement but the house is not paid off and the owner owes more than what our cumulative payments will provide him. Is it possible for the bank to still take the house then?
A: As for your question, if there is a due on sales clause, then that is a concern. The options for the sellers would be to refinance (which was the case in our purchase) or you could write a letter to the bank explaining your contract with the sellers to see if they will wave the due on sales clause (that did not work in our case). Either way, you need to make sure that you have security interest on the house (meaning first right to the property).
Q: My understanding is that in your specific contract, you are only protected up to the amount paid thus far. For example, if two years in the contract the seller had decided not to pay and the bank carried out foreclosure, the bank would have to reimburse you for the all the payments made before taking over the house. Is that correct in your
circumstances? Please clarify.
A: The way we have our contract set up is that even if the bank forecloses on the loan of the sellers, the house should be unaffected. What you mentioned is similar to what we saw in a letter from the lawyers of the bank that did the refinance. They sent us a letter as an amendment to our contract and from what I understood, it said just that. If the sellers default then we have first right to purchase the house outright during a time period. If not, then we receive our payments up to that point back. I did not sign the agreement and this was an indication to us that the bank has no security interest in the house.
What about inflation?
Q: What about inflation? Say, you have a 8 year payment plan, the seller may be concerned that the monthly amount loses some value as the years go by. How do you think this issue can be addressed fairly?
A: It was a non issue for us, not even mentioned by the sellers. Usually the time period that is offered to pay off the house is short enough that inflation is not going to effect anything.
What if the seller is dealing with interest?
Q: A person who wishes to purchase a home in cash but knows that the seller may be using this money to pay their existing mortgage off or using it to remortgage their new home – is it halal (Islamically permissible) for this person to still purchase the home?
A: A Muslim is responsible for the validity of his transactions with others. What others do with their money afterward is not his responsibility. The Prophet (saaw) used to transact with polytheist Mekken people and with the Jews in Madinah, knowing that they deal with Riba and spend their money unlawfully, yet, did not stop. Furthermore, He (saaw )has eaten from the roasted sheep of the Jewish lady. [Above answer was given by an Islamic scholar in financial issues]
What homes are the best to target?
Q: I’m really serious about this and any help from you guys would be much appreciated. I just have one concern. When I make a legal contract between myself and the seller, what happens if he still has a mortgage on the house. If I pay the seller his full amount in 5-7 years he will still have to pay the bank for the remaining of the amortization term. When I am giving him monthly installments, I understand that he will be forwarding a potion of that to the bank to pay his mortgage. Which means most of the payments he receives from me goes to interest. Does this mean I would have to find homes that are mortgage free or has a very short term left on the mortgage?
A: The best scenario is someone who has their home paid off or close to it, but the main thing is that they do not have a due on sales clause. Then you would be able to have the installment sale contract take security interest in the property so the bank couldn’t take it if the sellers stopped paying their mortgage. With us, the sellers actually refinanced on their own to remove the due on sales clause so the sale would comply with our needs for our contract to have the sole security interest in the house. The key is to consult with a lawyer when writing up the contract to ensure what we have described in the book. We hope this helps inshaaAllaah and may Allah give you success.
The contracts in the appendix are hard to read.
Q: I can’t clearly read most important documents in the book; contract and offer letter images.
A: Please provide your receipt of purchase and they can be made available and you can view clearer copies.
Q: I just purchased the ebook for buying an interest free home. However, I did not find seperate legat contract templates in addition to the ebook. The book has some scanned images of those contracts but those are not very useful. I was hoping to get those documents so I can use them. Can you please send me legal contracts (doc format etc .
A: Thank you for your purchase. The reason we did not include a template of our contract is because each state has it’s own installment sale contract with it’s state specific laws, what we used was provided for us by our Real Estate Lawyer in Iowa. If you’re looking for a basic contract, you can do a search for installment sale contracts online, some charge a fee for the contract but there are some out there that are free. Your best bet however is to contact a Real Estate lawyer, this is the safest way to ensure you have a contract specific to your state.
Why would a seller agree to the KnowInterest method?
Q: It is common these days for sellers to require the full amount of the home in order to pay off the remainder of the mortgage and perhaps use some of it as a down payment on their next home. I’m wondering if it may be difficult to find those who have already fully paid off the home (or may not even be able to pay it off within the timeframe that the buyer suggests). Any comments or advice on this one? Do you think it could be stated in the initial or follow up email that we are only looking for homes that are already paid off or could be paid off with the down payment that we provide?
A: Trust in Allah (God), He will open the opportunities for you from ways you won’t imagine. Our purchase was not fully paid off AND had a due on sales clause and the sellers on their own found a way out of it. As long as you are clear and upfront, then you can find the opportunities.
- When the homeowner agreed to sell on down payment and monthly payments without interest -when you are allowed to occupy and use the house? After the contract signed or after complete pay off balance sell price after 10/15 years ?
- If you can use the home after contract signed , why homeowner agree to get monthly payments when he can get it all at once through conventional mortgage ? Why he need to wait 10 years or so ?
- Are such home owners we can find as you find 12 or 13?
- Yes, we occupied the house immediately after the contract was signed, downpayment was made and closing documents were completed. This took the standard time it takes to close on the house, a little more than 1 month. Our contract was only 5 years which we completed about 1 and a half years ago.
- Again, they only waited 5 years. Their home was on the market for a while, we offered the asking price (nothing higher or lower), and we made high monthly payments and they were ok with that. Of course, this was all after the will and permission of Allah
- It is very easy to find homeowners willing to do this by sending out emails to the realtors or owners as described in the book. The biggest benefit for realtors is that they will get full commission on the purchase amount. This is an incentive for them to work on your behalf.
Q: I have a few questions though. I know that there are quite a few first time home buyers programs out there. Most them are dealing with loans, however I do believe that there are some grants that one can qualify for that do not have to be paid back. With buying interest free, can one still be eligible for them?
Also I am in the process of saving money for a nice sized down payment for a house in the future. I don’t want to keep the cash in my home, but again starting a savings account puts me in the position of accepting riba again, a system I’d like to get out of. Is there an Islamic Alternative to the savings account.
A: As for your questions, we know of some programs that are similar to the one you are talking about. There is one right now in Iowa where we are at that is an assistance program that pays for a percentage of a new home construction predetermined areas. The way it works is you have to meet certain criteria (income levels, family size, etc.) and there are certain builders that work with the city with a set selection of building plans. I think they pay up to $45,000 in the cost of the home. I don’t know if they are doing anything similar in other areas of the US, but I imagine that they are. Also, you have to be able to pay for the house once the construction is complete, after paying a down payment (not sure what the percentage is). So this is a good option if you have the cash or can borrow the money Islamically (probably from relatives would be best).
Since we purchased our home the way we did as you’ve read in the book, we don’t really have a need for savings account because most of our income goes into paying for the house (which is almost done alhamdulillaah). Our savings account is really our home as an asset. Once it is paid off, then we would have a need for some sort of savings account. We have some personal options with family, but there are options souch as NAIT (North American Islamic Trust) and Amana Funds and others that you could invest your money in. We haven’t used them before, but we know of family that has and they seem to like it. Since we haven’t experience those organizations personally, we don’t necessarily endorse them but you can read more about them.
I’m sure there are Islamic alternatives for business banking accounts. I know that La Riba (I know you said Laa Shukran) has a bank that is supposed to be Islamic and you could research that too. We just keep our money in our bank account but have told them not to pay us interest. Again, with our house payments, we really don’t keep too much money in our bank account anyway. It comes in and goes right back out.
Q: I have a couple of questions about the ownership of the house.
1. Why is it still in the seller’s name? Was it because he had to
refinance it to sell it to you?
A: 1. The house is both in our name and the seller’s name. I’m actually not quite sure why the county assessors have listed it like this. It is an installment sale contract, so maybe they do this until the installments are complete.
Q: I just want to extend my many thanks for your help and direction. I have a better understanding of how things work now. Just to summarise;
If a house already has a mortgage or lien against it, the Know Interest model cannot work unless the mortgage or lien is first cleared (for instance by a refinance where the refinance is secured by some other asset other than the house I intend to purchase)
If a house doesn’t have a mortgage against it, it can work straight away.
One other question I have is in terms of a due on sale clause; does this clause in the US encompass any term which stipulates that upon sale of the house, the bank has the right to demand full payment of their outstanding monies. Im not sure if it also encompasses default, like what happens if the purchaser defaults
In the US, if a contract;
(1) does not have a due on sale clause
(2) Is filed via the register (and the register shows the contract was filed first)
(3) But the contract stipulates that upon default the bank has the right to sell off the house to retrieve their money
If I then buy the house through the know interest model, and the purchaser defaults, then I would believe legally the bank has full rights to sell the house because although there is no due on sale clause, the contract does state that the house will be sold upon default, and the terms of the contract would take priority over my contract because the banks contract was filed first.
What that tells me is that for the know interest model to work, a contract of the bank cannot make any reference to the bank being able to sell the house or use the house as collateral in the event of default or sale. Am I correct in this understanding Humza? I know that the model can still work if the sellers refinance their house and secure the refinance against another property they have (which is what happened in your situation).
A: All of your assumptions below are correct. The only thing would be if there is no due on sale clause but the mortgage says that upon default the bank takes ownership of the house, there would have to be an amendment worked out with the lawyer and the bank to allow the new installment sale contract take precedence over the banks existing mortgage. But, knowing how banks are, then this is unlikely and like I mentioned before, very few mortgages leave out a due on sale clause.
Perhaps there might be an opportunity on near foreclosure properties to do a work out with the bank. Meaning, that if the seller is fearing foreclosure, a buyer could come in with an installment sale purchase contract for the property to show that the bank will be getting at least some of the money owed by the sellers in exchange for a contract amendment giving the buyers full rights to the property and a security interest. In essence, the amendment would have to exclude the bank from the installment sale contract because Islamically, there cannot be a 3 party contract. Does this make sense? This is not in the book by the way because we haven’t actually tried it or tested it.
Q: In Australia we do not have a “due on sale clause” within property contracts. But the system in Australia works by way of registration/filing. What that means is; if you want to determine which contract takes priority, you must look at which contract was “registered” first. Their is a public register which allows all purchasers to view any registered interests against properties. The first contract to be registered takes priority, then the second and so on. So in effect, it works like a due on sale clause.
So im still a little confused with how to apply the knowinterest model here in Australia, but inshallah with sincerity and dua I can work something out.
A brief example of how contracts work here in Australia;
1. Party A approaches bank ABC and takes out a mortgage to buy a property.
2. Bank ABC gives party A the mortgage but “registers” its interest against the property (thereby taking priority over any later contract).
3. If party A then wants to sell the property to a new purchaser, a purchaser will browse the public register (which details any “registered” interests against properties)
and they will realise that Bank ABC has an interest in the property, namely that they have a mortgage against the property.
4. Hence the purchaser must pay bank ABC the balance of the mortgage to clear the register of Bank ABC’s interest.
5. If the purchaser burrowed money from another bank to buy the property, that other bank will then register their interest in the property until they are paid off.
This is where the confusion for me lies, I approach party A and attempt to apply the know interest method, but there is no way to defeat the banks interest in the property as they have registered their interest first.
The only way I see it working is by the following, you know how I said in Australia it works by registration, well a bank can give out a mortgage and not register their interest, some banks dont register their interest straight away and wait a while. If somebody else comes along and purchases the property, and “registers” their interest before the bank does, then the second contract takes priority as it was registered first (hence you can see how it works by “registration”). This would be similar to you purchasing your house in the US which didnt have a due on sale clause, because it allowed you to enter into a contract and your contract took priority (even though a bank had an interest in the property)
Please Humza can you just clarify for me if my understanding of the US is correct i.e if a contract does have a due on sale clause the know interest method is hard to work because the purchasers contract wouldnt take priority over the banks. But if the clause doesnt exist, then it works because you can draft your contract to ensure it takes priority over any other contract (I guess this would be by drafting your own due on sale clause and including it in your contract). What astounds me is, why would a bank in the US not have a due on sale clause, as it is a simple way to protect their interest rather than chasing the seller if they sell the house.
If the contract does have a sale on due clause, then is the only option to get the seller to refinance their mortgage BUT secure the loan against another property or other asset, as this would then allow you to purchase the property mortgage free and draft your contract so it takes priority. When you said your contract was filed before the refinance, what did the refinancing bank secure thier refinance against?
Im sooooo sorry for making this long, I just want to figure this out before I take the next steps. I sincerely want to thank you for giving me some hope and helping me think outside of the box, as you did yourself. Even if it doesnt work, Allah is aware of my intentions and my struggles. May Allah reward you generously in this life and the next.
A: The system in the US is very similar with filing. I don’t know if our register is public, but there is a register that shows who has a security interest in an asset, etc. and the order of who filed. And as for the due on sale clause, almost all new mortgages have one. Some don’t, and I don’t know why a bank wouldn’t have one unless they are using another property as collateral to the loan.
In our case, we were told in the beginning that there was no due on sale clause so we signed a purchase agreement. We then found out there was one and we said we were walking away. The sellers really wanted to sell so they gave some options and we didn’t agree to them. Then they refinanced the house with another bank anyway, and I assume that the new loan was against their current property. Our lawyer reviewed the refinance documents and our contract (installment sale contract) which states we have first rights on the house and that there cannot be any other party (i.e. a bank) in the property other than us and the sellers. It was OK and we filed our contract.
Now, something interesting happened a few months later. We received a letter from the lawyers of the new bank (the one that refinanced the house) asking us to sign a voluntary amendment to the contract. I read through it and I didn’t like what I read. We contacted the sellers and asked them why this was sent to us and they said they think we should just sign it. I called the lawyers who sent it and asked them if I was understanding it correctly and they said yes. I said then I’m not signing it. They said that was my decision. What it said as I understood it (they wrote in very complicated terms naturally), was that if the sellers default on their loan, we have first rights to purchase the house but if we don’t, we get all of our money back and the bank takes the house. I haven’t heard from them since, but they wouldn’t have done that unless they knew they had no rights to the house.
Based on your questions, I am going to do some more research if we have a public register. There is a way to check if there are any liens on a property which is just as important when purchasing a property. I am also going to speak to some lawyers in regards to a contract similar to ours to verify that what our lawyer told us was correct.
For you, it may be best to find homes that have no filings against them to purchase (although that is limiting due to the widespread mortgages and equity loans). Even if the housing market isn’t down, many people like the idea of receiving monthly payments and are still very interested in seller their home using our method. Our society today is all about payments. Of course, other people want all the money right away as would I. The best thing about our method is that it is very simple. And it takes almost no effort in the beginning when finding a home. Just send a mass email similar to the template in our ebook and see who responds. And let the realtors do the work for you, they are usually very hungry. We’ll make duaa’ that you will be successful.
Q: My wife and I have a few questions we would appreciate if you can answer for us to help clarify a few things:
1) Are you aware of any other success stories of people who have followed your system/model to buy an interest free home?
If so, can you get testimonials from them and place them on your website? I think that would help to sell this idea more. btw: I’m already sold 🙂
2) Did you purchase a second home using this system/model?
3) You recommend offering a higher monthly payment than their usual mortgage monthly payment. This is worse case scenario right?
What I mean is that in the case that the bank lifts the ‘full payment on sale” (sorry I forgot the term you used) and they still owe a mortgage on the house?
A: As for your questions:
- Yes, Alhumdulilah our friends purchased their home last May following the way we did it in our ebook. We get a lot of feedback from people who have read our book saying they are excited to go forward doing the same but we’ve never followed up to see if they bought their home yet. InshaALlah we would love to hear from you once you have purchased your home. We are working on updating our website, so inshaAllah we will include testimonials on the new site.
- Yes, alhumdulilah, we outgrew our condo and purchased another home last year . Because we bought our first home interest free we were able to pay it off fast and therefore have a nice lump sum to put towards our second home. The balance was purchased in the same manner as our first home, interest free over a contract.
- THe purpose of the higher monthly payment is to make your offer as attractive as possible. In most cases you are offering something to the sellers that they have never heard of, and so they may not always be so eager to accept. By making larger monthly payments, you are making your offer more attractive which will inshaAllah give you a better chance at your offer being accepted. You do not have to do this though.