FAQs About islamic Financing Canada
You may have some questions or clarifications regarding Islamic home financing, particularly the Ijara lease-to-own process. We've gathered some of the common questions Canadians have asked us over the years and prepared the best answers to clarity them up for you.
Basic requirements include:
- Credit Score: A good credit score (typically 680 or higher) is crucial.
- Income and Employment: Stable income and employment history are essential. Our lenders will assess your debt-to-income ratio (DTI).
- Down Payment: You'll need a down payment, usually 5% for properties over $500,000 and 10% for the exceeding amount.
- Debt-to-Income Ratio (DTI): Your DTI (total monthly debt payments divided by gross monthly income) should be below a certain threshold, typically around 44%.
Some important documents you will need for the application are:
- Proof of Income: Pay stubs, Notice of Assessment (NOA), employment letters, last 2 years T4 or T1 General (if self-employed)
- Credit Report: Obtain a copy of your credit report from a credit bureau (TransUnion or Equifax).
- Down Payment Funds: Proof of funds for your down payment (bank statements, investment statements).
- Property Information: MLS listing, property tax information, condo documents (if applicable).
- Government-Issued ID: Driver's license, passport, or other valid ID.
The approval process can vary depending on several factors, including your financial situation, the complexity of the application, and the lender's processing time. It can typically take anywhere from two business days to a week.
Try these tips to improve your chances of getting an approval:
- Improve your credit score: Pay bills on time, reduce credit card balances, and limit new credit applications.
- Increase your income: Look for ways to increase your income, such as asking for a raise or taking on a side job.
- Decrease your debt: Reduce or eliminate high amount of debt, such as credit card debt.
- Save for a larger down payment: A larger down payment can improve your chances of approval and reduce your monthly mortgage payments.
- Get pre-approved with IjaraCDC: This can help you determine how much you can afford to borrow and gives you an advantage when making an offer on a property.
Yes, just send us a copy of your latest credit report alongside with your full application
A trust is a legal arrangement that will benefit people who wish to privately structure their affairs, or who wish to control assets without actually owning those assets, or, in some circumstances, who wish to take advantage of certain tax-planning opportunities. It is an independent entity that is created specifically for your transaction. Each customer will have their own trust.
Nobody owns the trust. Think of a trust as a legal person, it has an existence on its own. Trust is the one that hold and takes care of the property until its fully paid.
We can work with any type of lender in Canada, including banks.
There is nothing in Islam that says a non-Muslim cannot participate in Islamic Financing, as long as the transaction is structured so that the profit is earned through a halal means, the source of the funds is not the issue, rather than the structuring of the specific transaction itself. Some of our investors are banks, but just because they are a bank does not exclude them from participating in Islamic financing. Every transaction that we do with our investors are set up as an Ijara transaction (rent to own).
There's no riba or interest, but you are renting while you are working to pay towards your ownership. At the end of the day this is still a business transaction, so the investors need some sort of benefit to having their funds tied into the property, and that benefit would be from that rental income.
No, the property title/deed will remain in the client’s name.
It keeps the asset safe and protects the property from individual liabilities (e.g. bankruptcy). And if something bad happens, beneficiaries acquire asset instantly.
You are usually able to make a few extra payments per year without penalty (about 10% to 20%, can vary per investor). Above that, it depends on the investor which funded the trust. There is usually an early termination fee, which is around 3 months’ rent (for the full mortgage pay off). You are also able to put more down directly towards ownership at the end of your term before resigning.
The Ijara transaction is formulated on a reverse amortization calculation setting it apart from a conventional mortgage amortization. The investor earns profit on the initial Ijara amount financed by the customer through monthly rental payments. Standard amortization calculations are acceptable, as there are no Sharia issues with mathematical formulas being used to determine specific monthly payments.
The rates that we can offer in general is at par to what the market rate is, but each application and scenario is different. If your file is a little complicated, low credit score, employment issue, etc., then your rate would be a bit higher parallel to the complexities of your file. But if you can compare our investor’s rates of the same scenario with the bank’s rate of the same scenario, it should be more or less similar.
There is no waiting list with Ijara. We can start the application as soon as we receive the full application.