Two of the three primary halal mortgage structures (the third being Murabaha) are Diminishing Musharakah and Ijara wa Iqtina. Both are permissible; the structural mechanics and Mufti review depth differ.
Diminishing Musharakah (DM): the financier and homebuyer co-own the property at the start. The buyer pays rent for the financier's share and separately buys out chunks of that share over time. Risk during the term is genuinely shared. AAOIFI Sharia Standard 12 governs.
Ijara wa Iqtina (IwI): the financier owns the property, leases it to the buyer, and transfers ownership at end of term via a separate sale or gift. The buyer pays rent and an acquisition payment each month. AAOIFI Sharia Standard 9 governs.
Why Mufti review often prefers DM on principle: risk sharing is structurally cleaner. The financier holds title throughout in IwI; in DM, the buyer immediately holds a share of title (typically 20%), expanding to 100% by term. Both structures are valid; DM more directly mirrors the underlying Islamic jurisprudence on real-asset transactions.
Why IwI works well in practice: state property law in some jurisdictions handles single-owner deeds more cleanly. Where the title insurance, refinance, and resale paths get simpler under single-owner Ijara, providers default to IwI.
Cost: both structures price comparably at the same nominal rate. Closing costs are similar. Default recourse differs: in DM, recourse is structured around the partnership and the property; in IwI, the financier as owner has clearer eviction paths. Review with an attorney.
Which to pick: state, provider availability, and the specific contract language matter more than the structure label. Guidance Residential and UIF default to DM; Ijara CDC and LARIBA default to IwI; check what's offered in your state.
Editorial. Mufti review on which structure you should pick lands when corpus content covers it.