Applying for Home Finance

How much deposit is required?

A 20% deposit is required when applying for Home Finance.

Can I borrow on my home?

No. This sort of facility is considered Bay al  Eenah in Islam which is not permissible. Such a transaction is considered a disguise for an interest-based transaction.

Bay al Eenah occurs where one party (party A) will buy an asset from party B, then immediately, party A will sell the same asset at a high price to party B.

Does ICFAL offer finance to build a home only on pre-purchased land?

Yes. The building will be financed under the Istisna-Musharaka process. Construction must be supervised by an ICFAL representative. 

The project will be broken into a few stages. Every stage can be a maximum of one month long so all expenses for that stage is captured and a stage financial schedule is signed off.

Once the building is complete, a combined full Share & Equity Rental (SER) will be prepared with all the stages.

The land must be mortgaged to ICFAL. If the land is pre-purchased using ICFAL’s finance under Musharaka SER, then the Land SER can be combined with the building SER.

Can I purchase only the land with ICFAL’s home finance?

Yes. However, the purpose of the land should be to build an income-generating project such as rentable property, agriculture, or farming. And the land will be mortgaged to ICFAL.

The Musharakah process can still be applied by allowing a process of leasing to build or leasing to farm.

Does ICFAL offer construction finance?

Yes, for construction finance we will purchase the required building materials to build the property and resell them back to the member. 

If the member does not hold the land, the member must contribute a minimum of 20% of the estimated value of the building project.

Can I re-finance my home loan to ICFAL? 

Yes. After a valuation of the property, the amount ICFAL refinances will become ICFALs share in the property.

The member will then pay rent for ICFALs share of the property and will purchase the shares over time.

How much can I finance for my home? 

We offer Home Finance to a maximum amount of $700,000 over a maximum period of 30 years.
The time period allowed is reduced by 1 year for each year the member is above 40 years of age.

How do I apply for ICFAL’s Home Finance and what does the application process look like?

You can apply online through our online form. Make sure you meet our basic eligibility criteria for our home finance before applying.

The application process

1. Apply online
The online application may take around 10 minutes to complete where you’ll tell us about:
    - The type of property and finance you’re after
    - Your deposit or equity
    - Your finances, including income, assets. liabilities and expenses
2. Assessment
Based on what you’ve told us, we will assess your application. During this stage our finance manager may get in contact with you regarding your eligibility, request additional documents, provide you with an idea of how much finance amount you might be eligible for and progress things to the next stage.
3. Conditional Approval
After assessing your application, if you’re successful we may be able to provide you with a conditional approval where you will be requested to become a member of ICFAL and hold a minimum of 10% of the estimated property price until funds become available.
4. Full Approval
Once we’ve valued your property and completed other verification,  we’ll let you know when your application’s been fully approved. Accept our finance offer and you’re on your way to settlement – congratulations!

I am self-employed, can I apply for ICFAL’s Home Finance?

Yes, you can. To be eligible, you’ll need to:

- Provide your registered ABN
- Have been self-employed for at least 2 years
- Provide your two most recent business tax returns AND your two most recent
  personal tax returns together with the notice of assessment.
- Have a good credit history
- Meet our standard eligibility criteria

Am I eligible for ICFAL’s Home Finance? 

For eligibility, you will need to ensure you:

- Are an Australian Citizen or Permanent Resident of Australia
- Are aged 18 or over
- Have a regular, verifiable Australian taxable income
- Have a fixed, verifiable residential address in Australia

Other credit and approval criteria will apply depending on individual circumstances.
Home Finance Features

If the property price declines, will ICFAL accept a loss for their shares rather than a profit as the shares represent the value of the underlying asset?

Yes, ICFAL will share a loss when an unavoidable loss situation occurs which is out of the control of both of the parties. This is the unique aspect of our Mushaarakah financing system.

However, it must be noted that over time, although there is volatility in house prices, it is rare to see a  decline in property prices. ICFAL takes a long-term view when it comes to assessing the pricing of its Musharakah units. ICFAL will review the pricing on its Musharakah shares should a significant shift in the market occurs.

If, on the other hand, a sale at loss is driven by the member, then the initiative is carefully investigated by ICFAL and a genuine need to sell is established to avoid any unfair passing of member’s interest to a loss to all the general cooperative members.

How are the rental and property price growth rates determined?

At the time of purchase – We obtain an independent valuation of the property and rental price. Along with this, we conduct our research based on historical property prices and rental growth data of the relevant suburb. 

These growth rates will then be presented to the member for their agreement. If the member disagrees, they may obtain their own valuation at their own cost to renegotiate an appropriate growth rate.

What happens if I wish to sell the property?

ICFAL will share the profit or loss of selling the property net of any costs involved to sell the property.

Do you share in the fixed costs of the property? 

Yes. During the term of our Musharakah agreement, ICFAL shares in the costs for strata rates (if applicable), council rates, fixed water charges and building insurance.

The member is expected to pay the invoices and submit them to ICFAL for us to process their request.

Why do you need to apply a 3, 5 or 10-year growth review period?

In an ideal situation, we will like to re-assess the property house price and rental prices every year. However, due to resource constraints, this is not practical for us at this stage.

These periodic reviews are opportunities for both ICFAL and the member to re-assess the market situation and make the relevant adjustments to property and rental prices.

Why does ICFAL’s Home Finance always appear to cost more?

1. We are not tied to prevailing interest rates.
ICFAL’s Musharaka model wasn’t always more expensive. We are currently witnessing historic lows in the prevailing market interest rates. In fact, prior to the historically low-interest rate environment, we are experiencing now, ICFAL was competitive and even cheaper than the prevailing interest rates.

Due to the fact that ICFAL’s profit rates are not directly related to the prevailing interest rates, our profit rates will always be different to the market.

Our funding is purely from our members and therefore we are not under any obligations to third parties to fix ourselves to the prevailing interest rates.
2. ICFAL is still a relatively small provider of finance compared to many conventional banks. Therefore, we naturally have a higher cost base to run our operations in order to benefit the community. The larger organisations have a much greater volume of transactions and therefore can pass on cost savings to the members.

How are my monthly payments determined? 

The payments made to ICFAL are based on the concept of trading and reflects the real-world return on property investment.

The monthly payments made to ICFAL consists of 3 components:

1. Rent – The rental fees paid to ICFAL are taken from a market valuation at the beginning of the contract. A pre-determined rental increase is negotiated and applied at the beginning of the contract.
2. Share purchase – This is the original contribution ICFAL made to purchase the property. ICFAL then offers these shares for sale to the member on a monthly basis.
3. Profit on share purchase – This is the profit ICFAL makes from selling its shares back to the member on a monthly basis.

Over time, the rent and profit on share purchases paid to ICFAL can change depending on market forces on the real estate market. These rates are reviewed every 3, 5 or 10 years depending on a member’s request.

What Islamic contract is used for ICFAL’s Home Finance?

Our finance contracts are based on Musharakah Mutanakisah or Diminishing Partnership.

Musharaka is a partnership contract within the bounds of Shariah. It features two parties who contribute capital (for a business) and share the profits based on a pre-agreed ratio. The ratio extends to sharing of losses between the parties.

At ICFAL, we implement a mode of Musharakah known as the Diminishing Musharakah. Here the principles of contribution and sharing of profit remain. The key difference comes in the time factor where there is a set time frame to which the partnership continues. You will be renting out our remaining portion of the house during the contracted period. Over the course of the financing period, the majority share held by ICFAL will be sold gradually to you. Hence the name “Diminishing Musharakah” as the share of our partnership slowly diminishes into your sole ownership.

What is  ICFAL’s Musharakah Home Finance process? 

The process of our Musharakah Home finance is as follows:

1. The member selects the house to purchase (assuming the member has 20% of the estimated purchase price with ICFAL already).
2. We obtain a valuation of the property price and rent.
3. ICFAL and the member will negotiate on a rental price, rental price increase and property price increase over a period of 3, 5 or 10 years. 
This is a regulatory requirement to ensure ICFAL is clear and transparent to the member about the potential amount of payments they will be making over the entire term of the contract.
Please note, ICFAL does take into account significant and fair movements in market prices if required.

4. We purchase the house in partnership with the member.
5. The contribution made by both ICFAL and the member will then be considered the respective shares in the property by each party. These will be then used to determine profit or loss sharing, rental contribution, and fixed cost contribution of the property. 
For example, if ICFAL contributed $400,000 and the member contributed $100,000 on a $500,000 property, ICFAL will then hold 400,000  shares on a total of 500,000  shares on the property.
6. Over time, the member pays rent on ICFALs share of the property. This rent amount will reduce with each additional share purchase the member makes.
7. The member purchases ICFAL’s share over time.

Where does ICFAL source its funds from?

Our funds are strictly sourced only from our members and not any other external providers or parties.
Home Finance Shariah Compliance

What makes ICFAL Islamic?

ICFAL operates a truly unique financing model by:

1. Sourcing our funds only from our members and kept in an interest-free bank account.
2. Sharing in any equity profits and losses in the sale of the property in the market.
3. Allowing for the rent and profits paid under our Musharaka financing model to be based on the actual rent and property prices using an independent valuer.
4. Our profit rates are not tied to the prevailing market interest rates.
5. ICFAL is a community-owned and operated organisation. The profits are not attributed to any single member or a small group of individuals.
6. ICFAL simply offers a platform to bring members who would like to help other members to homeownership through a proven Islamic financing model.

We believe these factors make us substantially different from other financing models.

Is there such thing as true Islamic finance? 

We believe there are true Islamic financing alternatives available. In particular, our model of Home Financing is significantly different from the market that many of our legal, regulatory and compliance partners recognise our unique Musharakah model as substantially different from a standard principal and interest model.

What makes ICFAL’s Musharaka finance more Shariah-compliant than others? 

1. Our funds are strictly sourced only from our members and kept in an interest-free bank account.
2. Our unique Musharakah model allows us to share in any equity profits and losses in the sale of the property in the market.
3. The rent and profits paid under our Musharaka financing model are calculated based on the actual rent and property prices using an independent valuer. It is not tied to the prevailing market interest rates in any way.

How are the payments made to ICFAL different from payments that are made to a Bank? 

The payments made to a bank in a conventional finance system is based on repayment of money with no relationship to the potential rise or fall in rental and house prices. The bank lends a customer a certain amount of money and expects a certain amount of money in return for the money they lent out.
The payments made to ICFAL are based on the concept of trading and reflects the real-world return on property investment. Payments are dependent on 3 components: Rent, Share Purchase, and Profit on Share Purchase.

If there is no interest, why am I paying additional to the amount ICFAL initially invested by the end of the contract?

Paying more does not mean you are paying interest. The money that ICFAL makes is derived from rental payments and profit made on ICFALs shareholding. Most of the profit that ICFAL derives over the term of its finance contracts is in the form of rental payments.

Isn’t Islamic finance meant to help the less well off by not oppressing them through financial obligations?

Islamic charities such as Sadaqah and Zakat are the Islamic mechanisms to truly help the poor. Islamic finance aims to balance the interests of both the investor and the party who needs money to invest.

The aim of Islamic finance is not one-way of giving. It is to bring those that have more wealth and those that have less wealth to produce economic benefits for both parties.

Under ICFAL’s unique Musharaka model, we are simply bringing members who have the ability to invest, and members who wish to purchase a property together in a mutually beneficial way.

The members who provide their additional wealth to help purchase the property share in the rent and equity increase of the property. Whilst the member who wishes to own property are provided with a fair Islamic financing model to ultimately own their own homes.

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