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Fatwa CenterHow to build a house through Muraabahah
Question
SalamuAlaykum, I have read all your fatwa's regarding mortgages but did not find an answer to a question that I have in mind. I am basically buying a land and building a house on it through a construction company. I am not going to borrow money from the bank and pay the construction company, instead, the bank is going to pay the company the cost of construction and the cost of the land and then I am going to pay the bank for the land and the house at a price which they will choose. There are two important points in this transaction 1- I am not exchanging money with money with interest because I did not really receive any money at any point. 2- I am paying the bank for a product (house+land) at a price they will choose. Can you please advise me if this falls within Riba? Thank you
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.
If the bank buys the land and owns it, and then constructs a house on it, and later sells it to you by instalments, then this is permissible. This is what the scholars 
call selling by Al-Muraabahah (i.e. the bank purchases the item and then sells it to a customer by instalments with a profit after the bank had actually possessed it), for a person who orders the buying; for more benefit, please refer to Fataawa 90798, 84961 and 82332.
However, if the bank does not own the piece of land and does not sign a contract with a construction company for the building of the house, rather it is you who buys and signs the contracts and then the bank pays the money on your behalf and then takes the money from you by instalments with an added interest, then this is nothing but a forbidden loan with Ribaa (interest and usury), whether or not you actually received money from the bank; for more benefit, please refer to Fataawa 83688 and 81961.
Allaah Knows best.
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