The most common question when applying for Islamic loan is “Am I qualified”?. So let’s take a look at what the qualifications are for an Ijara^TM transaction and what you can do to prepare yourself if you are not quite ready now. Also, see Common Mistakes that could affect your credit.

Simply put one must have reasonable credit, enough money in current accounts to satisfy the down payment, closing costs and reserves, and sufficient income to afford the monthly payment.

Credit: The minimum credit score to qualify Ijara^TM transaction is 640. In some cases, a lower score for an Islamic loan can be financed but all approvals work on a case by case basis and is subject to the underwriter’s discretion. More information on credit and how to improve your score can be found in the credit section under the general information tab.

Down Payment: There is a seasoning requirement for all monies used for the down payment, closing costs and two-month reserves. Basically, you must have enough funds in the beginning and ending balances in your accounts for two months. Any large deposits have to be verified and proper supporting documentation sourcing those deposits provided. It is possible to receive some gift funds for an Islamic finance transaction, provided the gifts are from family members. However, these cannot be used if the property you are purchasing is an investment or second home. We would suggest not making any transfers or large deposits during the course of your application without first contacting us to make sure you have the proper document trail. Nothing is more frustrating to all parties than when a customer suddenly makes a large deposit. It’s important to understand the source of funds for several reasons. First because of restrictions in the Patriot Act, and second because the underwriters have to verify that there is no repayment required on the funds since that impacts your debt to income ratio (DTI).

Income: During the final approval process, the underwriter needs to confirm you are purchasing an affordable home. For this purpose there is a DTI calculation, which must be below a certain percentage. This varies depending upon the program you apply for. Ideally your DTI ratio will be below 39%, but could go as high as 45% and in some rare cases an exception for up to 50% can be made. The DTI ratio is calculated by adding up all of the minimum monthly payments on your debts i.e. car loans, student loans, credit card payments, etc. and dividing that total by your gross monthly income.