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Fatwa CenterIslamic Ruling on Buying a House with an Existing Mortgage
Question
Assalamu alaikum. I want to buy a house using cash, but it is currently under an interest-based mortgage. We agreed that I will give the seller a deposit equal to the remaining mortgage so they can repay the bank and remove the lien. Only after the house is free of encumbrance, we will sign the sale contract and I will pay the remaining price. Is this arrangement permissible, and does it involve me in riba?
Answer
All perfect praise be to Allah, the Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad 
is His slave and Messenger.
Scholars have differed regarding whether a mortgagor may sell a mortgaged property before the mortgage is released. The prevailing view is that it is permissible, provided the mortgagee consents. Accordingly, if you wish for the contract between you and the homeowner to be free of riba (interest), you should enter into a sales contract with him and pay a portion of the price sufficient to release the mortgage. You would then pay the remaining balance once the mortgage is cleared, while completing all necessary legal procedures to document the sale.
Delaying the sale until the mortgage is released, while simultaneously committing to pay the amount required to clear the mortgage and obliging the homeowner to sell to you, constitutes a loan with a conditional sale. This combination is not permissible, as the Prophet (ﷺ) forbade transactions that mix loans and sales. Consequently, you are not permitted to stipulate that he must sell to you under these conditions.
However, if you can lend him the amount without any conditions attached, then once the mortgage is released, he is free to sell the property to you or to someone else at a price he deems appropriate. If he chooses to sell to you, he may deduct the debt owed from the purchase price, and you pay the remaining balance. This transaction is permissible.
Allah knows best.
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