Islamic law does make exceptions to the ban on interest, if one's family is at stake. But the exceptions are open to interpretation and for many observant Muslims, conventional mortgages are strictly taboo.
Nawawi Sheikh is one of them. The Somali-American says he and his wife just couldn't go against their beliefs, even if it meant giving up their dream of owning a home. Still, he grew tired of moving from one rented apartment to another.
"One thing I hated was moving. I don't like to move all the time," he says.
He has no plans to move again anytime soon. Sheikh is the first home buyer to get a loan through the state's New Markets Mortgage Program. That's because, program manager Nimo Farah says, he has all the makings of a successful homeowner.
"I had lots of applications, but he's the first one, because really, he was ready. He has been working at the same job for quite a while; he took care of his credit; he had the right size family, and he had all his documents together," she said. "He was basically ready to go."
The program is targeted at low-to-moderate income families. Qualified applicants have to complete first-time home buyer education classes. The goal is to help Muslim home buyers build wealth and reap the benefits of home ownership.
Here's how the mortgage, known as Murabaha financing or "cost plus sale," works:
The state buys a home and resells it to the buyer at a higher price. The down payment and monthly installments are agreed to up front at current mortgage rates.
The deal is identical to a thirty-year fixed-rate loan, except there's no additional interest, because the higher up front price factors in payments that would have been made over the life of a traditional mortgage.
A handful of private banks and lending institutions offer Islamic mortgages in the U.S., but Minnesota Housing is the first state agency to offer such a product. The program is the brainchild of Hussein Samatar, director of the African Development Center in Minneapolis.
"The process is different, but the outcome will look the same," Samatar says. "We wanted to be as conventional as possible, while respecting the tenets of Islam."
Samatar, who used to work for Wells Fargo, tried for years to launch Islamic financing. He says the fact that Minnesota Housing has agreed to participate is a nod to the Muslim community's growing economic power.
Chicago-based Devon Bank is underwriting the loans for the New Markets program. Devon is one of the largest Islamic lenders in the country. Corporate Counsel David Loundy says he expects the demand for Islamic financing to grow as more Muslims make their home in the U.S. Loundy says Muslims tend to be good risks.
"If they worked so hard to get to this country, they don't want to screw it up now that they are here, so they tend to pay their debts pretty promptly," said Loundy. "In addition, you have a population that is religiously and culturally predisposed against having debt, so they want to pay down their debts as quickly as they can."
The numbers back this up. In its five and a half years offering Islamic lending, Loundy says Devon Bank hasn't lost a penny, though he admits the recession could make that record difficult to sustain as more borrowers face job loss.
But the bad economy is also offering opportunity. With housing prices at rock bottom, officials say the timing couldn't be better to match first time Muslim buyers with foreclosures that need new owners.
Nawawi Sheikh's new three-bedroom South Minneapolis home is a former foreclosure. The African Development Center's Hussein Samatar says there are thousands more potential buyers like Sheikh out there. He says the New Markets Mortgage Program will help the Minnesota Muslims community put down strong roots.
"It is great news for the country, and it really sends a great signal that the United States is our country," he said, "and we would love to make it better."
Samatar says he has 10 more qualified buyers already lined up. He plans to close on two or three more homes with Islamic financing over the next few months.