Ansar Housing Review (Islamic Housing Mortgage Company)

How Islamic Financing Works (Video)

If you don’t know how Islamic Financing works, please watch this video first on another company (Guidance Financial) that does a similar scheme.

About Ansar Housing

According to my understanding, Ansar Housing is the prominent and most easily available islamic financing instrument in the Toronto Area for home purchases.  I have not used them to buy a house yet, and I may in the future.  Most of this information was obtained from discussing with Tahir Qureshi at Ansar Housing.  . I confirmed the details with Mr Naqvi at ISNA Housing Cooperating

 

Islamic Cooperative has been around 33 years, Ansar Housing 12 years, and have successfully financed several homes. Ansar Housing 189 homes currently financed, and Islamic Coop 582 homes.  They use funds from direct investment from individuals, paying between 4% to 6% per year.

 

Who are ACHC, ICHC, and ISNA?

They are not a very straight forward or transparent company, and do not provide most of this information easily.  Apparently there are two different companies in one, ACHC (ansar housing cooperative) and ICHC (IsnaHousing.Ca). (islamic housing cooperative). Confusingly, their site calls it “ISNA Housing”, yet the actual ISNA housing site has an almost identical website url (see next paragraph). Both of these companies share a common membership/shares form, but they have slightly different rules in terms of share ownership (not sure about the details how they differ, details to be filled in)

Link to: ACHC Financial Report 2014, ICHC Financial Report 2014. ISNA has not released an annual report as of 2015.

ISNA financing

There is a seperate and distinct company known as ISNA Housing, which will offer upto $500k in financing apparently. As set out on their Eligibility Criteria page

I spoke with Naqvi, Manager there to confirm the following details. The details are very similar, you need to put a deposit down (say 20-30%), and then there is a waiting period before you can purchase a home. Currently (as of March 2015) this waiting period is 1 year, but you can call them to confirm this if and when you are interested. They offer upto $500k towards a home purchase, so you could put down $120k to get this. The same rule applies towards transferring an existing mortgage, he said 20-30% would be needed, and it has to sit there for 1 year before you can buy a home. ISNA started in is 2008 when they split from Ansar Housing. They have 69 houses currently, 8-10 fully paid.

Purchase minimum shares of aggregate price equal to twenty per cent (20%) of the anticipated purchase price up to $300,000; thirty per cent (30%) of the anticipated purchase price between $300,001 – $500,000, and hundred per cent (100%) of the anticipated purchase price above $500,000.

 

Now back to Ansar Housing (ACHC)….

 

SAMPLE mortgage contract (Also attached) – apparently its slightly older and is missing some conditions from the one they use now. 

 

How their financing works

 

Case 1 – No existing mortgage, finance directly with Ansar.

You require a downpayment between 20-30% or more according to this formula.

20% of first 100k, 20% of second 100k, 30% of third 100k, and 100% after that.

The maximum they provide $300k minus $75k deposit, resulting in $225k.  You also need to keep the money there for 6 months.  While its there, they will pay you profit on your investment/deposit.  So if you need say $450k, you will require $75k for the first 300k, then everything on top of that, so $150k+$75k = $225k down

 

Case 2 – preexisting mortgage or house.

Lets say you already have some good collateral, In this case I was told you need to provide approximately 10% of the loan, so if you need $225k, you simply give $22.5k for approximately 3 months.  This case applies if you take Conservatory Group's 0% mortgage for 3 years deal for example and then you need to get a mortgage with ansar after the 3 years.

 

Rent Calculation

Ansar housing uses a declining partnership model where they give you a rental amount that represents their portion of the house, say $1000, for a house of say $500,000 (numbers purely for illustration purposes).  If you pay off half of the house and buy shares worth $250k, your rent drops by 50% to $500 a month.  Month is recalculated each time you buy more shares towards owning the house.  This is the most shady part of the business, there is no transparency and the rates you get are obtained by filling out a 'housing information form'

I filled out the form for two units.  Finally after not getting a response, I called them up and Tahir called me back.  He said they do not have time to respond to each and every single request for calculating rental fee that I send them, and that I should only be doing this once I have actually decided on which home to purchase, and have already made the offer and what not.  Eventually he called me back and provided me the details "since they had already calculated it"/ They claim that the rent they come up with is based on the location and unit.  Part of the problem is they charge different amounts to different people.  And from 1 person I know, there is no room for negotiation. Take it or leave it.

 

The real numbers I got

For a 1300sq ft unit at 3700 Kaneff Cres in Mississauga, that was listed on MLS for $216,000 (also attached) the total rent would be $1300 (plus $15/month admin fee).  

 

Thus, with the mandatory $49,800 deposit, this would bring down the rent to approx $1030 a month.  I reverse engineered this to be 7.5% interest (but i dont know if this is exactly correct), based on the first month interest charge of $1300

 

 

 

Inline image 1

Figure 1: RBC Mortgage Calculator Month 1 at 7.5% interest on $216k

 

Also see attached image

Keep in mind that RBC's posted 25 year fixed mortgage rate is essentially 8.750%

You can cinsider this a 45 year FIXED mortgage, so the rate, compared to the above, is not that bad

 

Length of mortgage

The length of mortgage is not limited but the minimum shares you have to buy is $5k per year.  That means for a $225k house you could pay it off in 45 years.  This would bring your total rental charge to a ridiculous $500k estimated on top of the $225k capital.

Additional Special Share

With Ansar Housing, there is an additional special share you have to buy, which costs 10% or 20% of the increase in house price. If you financed more than 50% of the home (i.e. home was $300k and you borrowed more than $150k), this special share is 20%, otherwise it’s 10%

 

CHMC Fee

By law in Ontario (or Canada?) there is mandatory mortgage insurance if the buyer puts less than 20% down. There is no mandatory CMHC mortgage insurance because the mortgage is more than 20%, so they can avoid this issue.  

Double Tax

Details to be filled in. You may be hit with a double tax when the corporation first buys the home, then sells the home to you.

Supplementary resources

Khan Academy Rent Vs Own Detailed Analysis

Khan Academy Rent Vs Own Spreadsheet

 

Otherwise as of now, with a traditional mortgage, with 10% down on a $225k mortgage its $4000, and for 10% down on a $435,000k mortgage its approximately $11k  – CMHC fee calculator

 

I'd love to hear your thoughts on this.