Is Buying a House from a Bank through Murabaha based Financing where the Bank Purchases the House on your behalf at the agreed-upon market price, then immediately sells it back to you on a significant markup.
This markup is then amortized over 25 years (or as agreement states) and you make monthly payments towards fulfilling this obligation.
Is this way of purchasing a house Halal?
Bismillahi Ta’ala
Walaikum Assalam Warahmatullah
There are three parts to a fully Shariah Compliant purchase of the house upon any shar’i way.
- The concept of the scheme
- The contract reflecting the concept in it true sense
- Execution of the contract to make sure all parts of the contract are carried out in Shariah Compliant manner.
Your question only pertains to the first part. As such, what you have mentioned is not the correct depiction of Murabaha Financing. Lets break it down:
the Bank Purchases the House on your behalf
The bank does not purchase the house on *your behalf*. The bank purchases the house independently without any connection with you in the purchase. “One behalf of” suggests that the bank acts as your agent, which is not the case. Hypothetically if the house gets destroyed right after its purchase, then this loss is attached to the bank and not you.
In order to confirm your intent of purchase, the bank will ask you to sign a letter of intent separate from this purchase from the seller.
at the agreed-upon market price
Since the bank purchases the house from the seller independent of you, it does not require any agreed-upon market price for the purchase. The bank could haggle with the seller on a reduced price and buy the house you are interested in and you will have no say to it.
then immediately sells it back to you
Since the house was never yours, the bank is not going to sell it back to you. Instead, after purchasing the house from the seller, the bank will give you a proposal to buy this house from them at the agreed-upon sale price for it which will include the profit (ribh) which bank wishes to make on it. You have mentioned this to be a significant markup
This markup is then amortized over 25 years (or as agreement states) and you make monthly payments towards fulfilling this obligation.
This is correct.
As mentioned, once the concept is sorted out, the contract must reflect this concept in the true sense of the word, and thereafter also executed in the same manner as well.
Wallahu A’lam
And Allah Ta’āla Knows Best
Mufti Faisal al-Mahmudi