ISLAMIC BANKING

1 House Financing-iISLAMIC BANKINGH ouse Financing-iA consumer education programme by:1 Introduction2 What is house financing-i?How house financing-i works3 Property under construction4 Tips when buying a property5 Where can I get house financing-i?6 Financing applications: Documents required7 Fees and charges8 Margin of financingFinancing tenureFinancing featuresCommon house financing-i packages10 Graduated payment scheme Prepayment flexibility Early redemption rebate Early redemption charges11 Compensation charge Documentation12 Valuation report Takaful ( ISLAMIC insurance)13 Disbursement of financing14 Rights and duties 16 Frequently asked questions 24 Glossary 28 Appendix contents DisclaimerThis document is intended for your general informationonly.

2 It does not contain exhaustive advice or information relating to the subject matter nor should it be used as a substitute for legal : 10 October 2003 IntroductionPurchasing a property is one of the many important decisions that one makes in BANKING institutions provide financing for those who want to purchase aproperty based on Shariah booklet provides a guide to consumers who wish to know about property financing based on Shariah principles. It explains the overall process and procedures involved ingetting financing as well as the type of facilities available under ISLAMIC BANKING institutionsprovide financing for thosewho want to purchase aproperty based onShariah principles2 WHAT IS HOUSE FINANCING-i?

3 House financing-i is a Shariah basedfinancing facility to finance the purchase ofall types of residential properties includinghouses, flats, apartments or can also be used to refinance existingfacilities taken either from conventionalhousing loans or other house HOUSE FINANCING-i WORKSA fter you have signed a Sale and PurchaseAgreement (S&P) to purchase a property,you can approach an ISLAMIC bankinginstitution for financing. The Islamicbanking institution will assess yourapplication in relation to your eligibility,tenure of financing and payment approved, the ISLAMIC BANKING institutionwill purchase the property from youthrough the Property Purchase Agreementand pay the developer or seller thepurchase price (financing amount).

4 The Property Purchase Agreement isexecuted on the basis that you alreadyhave the rights to the property concernedbased on the S&P between you and thedeveloper or seller, and the ISLAMIC bankinginstitution is purchasing those rights inorder to provide you the ISLAMIC BANKING institution subsequentlysells the property back to you through theProperty Sale Agreement at an agreedselling price which includes a profit marginto the ISLAMIC BANKING institution forproviding the financing to you (Selling Price= Purchase Price + Profit Margin). You willalso need to charge the property to theIslamic BANKING institution. You will thenpay the ISLAMIC BANKING institution theselling price on a deferred payment basis byinstalments within the agreed paymentperiod under the house financing-i you have signed a Sale andPurchase Agreement(S&P) to purchase a property, you canapproachan ISLAMIC BANKING institution forfinancingv3 PROPERTY UNDER CONSTRUCTIONFor a property under construction, the selling price will also include the grace period profit.

5 You will pay the Islamicbanking institution the grace period profit:During the construction periodMonthly at a fixed amountUpon the first draw down to the developerUntil the completion of the property OR at any time determined by the Islamicbanking institutionHow house financing-i worksYou identify the property to bepurchasedYou sign the Sale and PurchaseAgreement and pay the amount of down payment requiredYou seek house financing-i from an ISLAMIC BANKING institutionThe ISLAMIC BANKING institutionpurchases the property from youthrough the Property PurchaseAgreementThe ISLAMIC BANKING institution pays the purchase price (financing amount)to the sellerThe ISLAMIC BANKING institution sells the property to you at the selling price(purchase price plus profit margin)through the Property Sale AgreementYou pay the monthly instalments to the ISLAMIC BANKING institutionProper tyProper tyDeveloperor SellerYo TIPS WHEN BUYING A PROPERTYP roperty under constructionWhen buying a property under construction,you should check the background of thedeveloper.

6 You should ensure that thedeveloper:Has a valid license issued by the Ministry of Housing and Local GovernmentHas a valid advertising and selling permitissued by the respective local authorityYou have the right to enquire from thedeveloper, information on license andpermit. You can also refer to the Ministry of Housing and Local Government forfurther clarification. A developer with agood track record reduces the risk of theproject being abandoned. (a) 4 Completed propertyWhen purchasing a completed propertyfrom a seller, you should find out themarket value for similar properties in thesame area. What can I afford?Work out a budget to help you determinewhat you can afford and the ceiling priceon the property you wish to purchase.

7 As a guide, your monthly commitments onpaying instalments for your property, carand other payments should not exceed 1/3of your gross monthly household your available sources of funding:Personal savings make sure that you have sufficient personal savings to pay forthe down payment (about 10% - 20% ofthe property price) and other related costs, legal fees and stamp duties (aboutanother 3% - 5%)Withdrawal from Employees ProvidentFund (EPF) account The total amount ofEPF savings which you can withdraw topurchase a property must not exceed thesum that you have in Account 2. Pleasecontact the nearest EPF office to enquireabout your withdrawal eligibilityFinancing facility from an ISLAMIC bankinginstitution shop around, check theavailable financing package that best suitsyou, the quality of service offered in termsof efficiency and reliability, and the chargesinvolved, legal fees, related governmentfees and chargesWHERE CAN I GET HOUSE FINANCING-i?

8 Currently, BANKING institutions that providehouse financing-i are the 2 ISLAMIC banks;and 13 commercial banks and 7 financecompanies that participate in the IslamicBanking Scheme. Please see the Appendix for the list of ISLAMIC BANKING outa budgetto help youdetermine whatyou can afford andthe ceiling price onthe property youwish to purchase(b) (c) 5 FINANCING APPLICATIONS: DOCUMENTS REQUIREDThe following basic documents are required for your financingapplication:A photocopy of NRIC or passportFor a salary earner salary slip (latest 3 months) & J or EA Form (latest 3 years) For a businessman or self-employed latest financialstatements, bank statements (latest 3 months), J Form (latest 2 years) and business registration and other supporting documents to support the incomeA photocopy of the Title Deed (if applicable), Sale & PurchaseAgreement, deposit or booking receipt /Letter of Offer from the housing developerValuation report for a completed propertySome ISLAMIC BANKING institutions may, however, requireadditional supporting documents.

9 6 Upon approval,you need to appoint a lawyerto draw up the financingdocumentationUpon approval, you need to appoint a lawyer to draw up the financingdocumentation. You can select a lawyerfrom a list of panel lawyers provided byyour ISLAMIC BANKING institution. Yourlawyer will submit the relevant documentsto the relevant government authorities for registration and to the Stamp Office for completed, these registereddocuments will be submitted to the Islamicbanking institution and you will be given a copy of the Property Purchase /SaleAgreement. Generally, this legal processshould not exceed six AND CHARGESYou would have to pay related costs such as professional fees andgovernment charges.

10 Some of the common fees and charges thatyou would expect to incur are:The types of charges and the amount may change in the check with your ISLAMIC BANKING institution on matterspertaining to fees and legal Between you and the developer or seller:Sale and Purchase Agreement 2. Between you and the ISLAMIC BANKING institution:Property Purchase Agreement and Property Sale Agreement 3. Other fees or charges:Rate for the first RM100, for the first RM4,900,000 RM5 per RM1, for the first RM100, for the first RM4,900,000 These are fees charged byGovernment authorities that couldrange from RM300 to RM700RM50 for the first RM30,000RM100 for RM30,001 to RM100,000RM200 for RM100,001 and aboveTypeStamp duty Professional legal fees Stamp duty Professional legal fees (securitydocuments)Disbursement fees, registrationcharges, searches (land andbankruptcy)