GREENSBORO, N.C. — United Guaranty Residential Insurance Co. announced that it will provide mortgage insurance for an alternative home-financing system designed for Muslims who observe the Koran’s prohibition on paying interest.

The company said Monday that the mortgage insurance will cover loans issued by Pasadena, Calif.-based American Finance House-LARIBA. Under these loans, AFHL purchases homes jointly with the consumer, agreeing to sell its shares to the customer in a lease-to-own arrangement over a mutually agreed period of up to 30 years.

The monthly payments consist of repayment of AFHL’s share of the purchase price, the principal, and the fair-market rental value (or rate of return), which is negotiated between AFHL and the customer.

United Guaranty will cover loans that have loan-to-values of up to 95% and a maximum value of $275,000; Freddie Mac will purchase the mortgages.

“United Guaranty’s relationship with AFHL increases the opportunity for Muslims to realize the American dream of homeownership,” said Tony Lucente, United Guaranty’s vice president of emerging markets. “The no-interest mortgage structure addresses the financial requirements of the Islamic culture, while the higher LTV option makes it possible for more families to purchase loans.”

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