Mortgages

Purchasing A House

Every complex business transaction or deal is fraught with potential ribbis concerns. For many individuals, their first or only experience with such intricate deals occurs when purchasing a home. 

It is important to note that many issues can be resolved with simple suggestions or minor adjustments. However, in most cases, these adjustments are only feasible beforehand. Once the parties are already under contract or a mortgage has been signed, the situation becomes much more complicated, and some issues may not be retrievable.

Whenever multiple parties are involved in a mortgage, a proper heter iska is required. 

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  • Ensure the mortgage bank or lending club if owned by Jews has a heter iska. Interest-bearing transactions are prohibited when they issue the loan. If they only service the loan, it's mutter.

  • The bank issuing the mortgage nows nothing about you. From their perspective, your relative\ Friend is the borrower and is responsible for all the payments. Halachically, this means that he borrowed money from the bank and lent them to you. Even though the payment is made directly to the bank, when you pay the interest that your relative\ friend owes the bank, it is prohibited and constitutes ribbis ketzutzah – midoraisah. A heter iska can be made to fix this. It is also highly recommended to have a contract written that states who is the true owner of the property to ensure that no misunderstandings occur in the future.

  • The legally documented borrower is halachicly considered the owner of the funds. Forwarding funds to another party is considered a new loan, therefore any interest payment is considered Ribbis Mdoraisa. This is only if they take upon themselves responsibility of the payment.

    This can be easily rectified with a heter iska.

  • If a buyer takes over a seller's existing mortgage, a heter iska is needed, unless the bank transfers the loan entirely to the buyer.

  • A joint loan makes each partner responsible for the entire amount, which generally requires a heter iska, especially if only one partner is the legal owner (this may also be a legal issue). Furthermore, if both partners are on the dead and only one of the partners took out the mortgage, a heter iska is also required. 

  • The co-borrower may be considered a borrower of half or all of the money who then lends it to the one taking out the loan with interest. This agreement also involves the issue of guaranteeing (arev kablan) an interest-bearing loan from a gentile to a Jew, which also creates a ribbis concern.

  • Husbands and wives with separate financial accounts who jointly sign a loan should seek advice from a Rav.

  • When buying through an LLC that has multiple partners a proper Heter Iska is needed.

  • When buying through an LLC it is common that a personal guarantor is needed. This agreement involves the issue of guaranteeing (arev kablan) an interest-bearing loan from a gentile to a Jew, which creates a ribbis concern.

  • Common Scenarios:

    • Partners equily responsible for the mortgage and both are using the funds.

    • Partners equily responsible for the mortgage and only one is using the funds and making the payments.

    • Making a cash out and distributing the funds to another party.

    A proper Heter Iska is required.