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The world of lending has evolved significantly over the years, and traditional financial institutions have gradually opened their doors to a more diverse group of borrowers. Non-traditional buyers, such as immigrants, self-employed individuals and those with no credit history, often face unique challenges when seeking loans. Fortunately, there are specialized options available to help bridge the gap and provide financial opportunities.
Non-interest-bearing loans and ITIN loans are two powerful tools designed to provide financial opportunities to these individuals. By understanding the features and eligibility criteria of these loan options, real estate professionals can help non-traditional buyers take the first step toward achieving their financial goals and building a brighter future.
Understanding non-traditional borrowers
Non-traditional borrowers are individuals who do not fit the conventional mold of borrowers with an established credit history, steady employment and a significant down payment. They can include recent immigrants, self-employed workers, or individuals with low or no credit scores.
For these borrowers, accessing traditional loans can be challenging. This is where non-interest-bearing loans and ITIN loans come into play.
Non-interest-bearing loans
Often referred to as Islamic financing, non-interest-bearing loans are a unique type of lending option that can be especially helpful for non-traditional buyers. Mortgages that charge interest on the principal loan are the backbone of the housing industry, allowing millions of Americans to purchase homes. However, a number of religious traditions, including Islam, and some sects of Christianity and Judaism, discourage members from obtaining loans that are repaid with interest.
Most non-interest-bearing financing is tailored to the needs of the Islamic community. Structured according to Sharia law, a code for living based on the Qu’ran, these loans are designed to eliminate riba’ — or profits made via interest. In real estate, they come in three basic categories:
Murabaha: Cost-plus-profit model
- Homebuyer and lender become co-owners of property with share of ownership determined by each party’s investment.
- Homebuyer makes monthly payments to lender until full ownership is obtained.
Musharaka: Co-ownership model
- Homebuyer selects a property, and the lender purchases it on their behalf.
- Lender sells the property to the homebuyer at a marked-up price payable in monthly installments.
- Over time the homebuyer acquires full ownership in the property.
Ijara: Lease-to-own model
- A homebuyer selects a property, and a trust acquires it and rents it to the homebuyer.
- Homebuyer makes payments to the trust until the acquisition cost is reached. Then, the homebuyer acquires full title to the property.
Where to obtain non-interest-bearing financing
There are lenders throughout the country that offer a variety of Islamic financing products. Each company provides information about the scholars or advisory boards that have reviewed their products and issued rulings on Sharia. Islamic scholars may have differing interpretations of Sharia.
A few things to know about Islamic financing products:
- Some up-front costs can be more expensive
- Compatible with grant-based down-payment assistance (DPA) programs. However, loan-based DPAs may not be eligible.
- Title rights may vary depending on the type of financing. This includes the right to sell the home, refinance, take out home equity loans and other actions.
Reach out to your local lenders for more information.
ITIN loans
Individual Taxpayer Identification Number (ITIN) loans are another valuable option for non-traditional buyers. These loans are tailored to individuals who do not have a Social Security Number (SSN) but are legally living and working in the United States. Immigrants, particularly undocumented or temporary residents, often fall into this category.
ITIN loans are designed to help these individuals access financing for various purposes, such as purchasing a home or starting a business.
How it works
To get an ITIN loan, the borrower needs to establish financial credibility, often providing more information than what is required for U.S. citizens. Primarily, the borrower must provide:
- Proof of sustainable income
- Credit history
- Income verification
Key features of ITIN loans
- ITIN-based: To be eligible for an ITIN loan, borrowers must have a valid Individual Taxpayer Identification Number, which is issued by the Internal Revenue Service (IRS) to individuals who are required to pay taxes in the U.S. but do not have an SSN.
- Variety of loan types: ITIN loans can be used for a range of purposes, including home mortgages, personal loans and small business financing.
- Building credit: For non-traditional buyers who want to establish or improve their credit history, ITIN loans can be a stepping stone toward obtaining more traditional loans in the future.
- Diverse lending institutions: Some credit unions, community banks and online lenders specialize in providing ITIN loans, giving borrowers a variety of options to choose from.
Learn more about how foreign borrowers can obtain an ITIN by visiting the Internal Revenue Service website.
As the financial industry continues to evolve, these options demonstrate that there are opportunities for everyone to access the credit they need and provide real estate professionals with the tools they need to serve an increasingly diverse population.
As the head of inclusion and belonging for Keller Williams Realty International, Julia Lashay Israel advises, trains and coaches leaders, team members and agents to recognize and address diversity, equity and inclusion opportunities and challenges across the organization.
