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A home loan is a convenient credit tool that can be availed of to enable your homebuying aspirations, but it is important to fulfil the eligibility requirements set by the lender of your choice. Sometimes, instead of being a single home loan applicant, you or the lender may prefer adding another applicant, to the loan, to boost your repayment capacity of profile viability. The applicant apart from the primary is referred to as a co-applicant, and such home loans are known as joint home loans.
Who is a Co-Applicant?
In a joint home loan, you can add up to nearly 7 co-applicants, easing your repayment burden. All co-applicants are expected to contribute to the loan repayment, substantially equalising the EMI burden on each individual. If the primary applicant is unable to repay the loan for any reason, the co-applicant is liable to compensate the repayment. A joint home loan lowers chances of a default and assures lenders of timely repayments.
As a safeguard and prudent underwriting practice, lenders may ask all co-owners of the property to become co-applicants, for more accountability. However, a co-applicant may not, necessarily, be the co-owner of the property along with you.
Before filing your home loan application, you are advised check the credit score of all the co-applicants ensure clarity on the collective credit history and repayment records. Even if there is one instance of minor payment overdue on an old credit card or incorrect reporting by any financial institution, it could hamper your credit score, reducing your chances of a loan approval.
Who Can Be a Co-Applicant?
Immediate family members are considered eligible as home loan co-applicants. This includes:
-Parents
-Spouse
-Brother
-Children
Note: While this is a generic list of acceptable co-applicants, specific lender may have caveats on certain co-applicant combinations.
Benefits of Having a Co-Applicant
There are numerous advantages to a joint home loan, in comparison to an individual home loan. These are:
>Higher Loan Amount Eligibility
At times, the income of one individual may not suffice for securing a loan approval for a high principal amount. However, when you add another eligible co-applicant, lenders will consider the income levels of both, and you could stand to secure up to 90% of the property’s value as the loan sum.
Combined finances automatically boost your home loan eligibility and enhance your chances of availing of a higher home loan principal. This enables borrowers to purchase a bigger house due to an increase in the loan budget.
>Lower Interest Rates
Most lenders in India extend lower rates of interest to female home loan borrowers. So, if the co-applicant is your wife or mother, you can avail of lower home loan interest rates, which is up to 10 to 25 basis points lower than the usual interest rate. Aside from this, having a co-applicant enhances your home loan eligibility, making you an ideal candidate for a low interest rate home loan.
>Tax Benefits
Co-applicants can claim home loan tax benefits individually on the loan, resulting in significant savings under the Income Tax Act. The rebates available to all co-applicants include:
Section 80C - Each applicant can claim reductions up to Rs.1.50 lakh per annum, or Rs.3 lakh in total, towards principal repayment on the loan.
Section 24 - Both applicants can enjoy benefits up to Rs.2 lakh each, annually, for the interest paid on the home loan with combined deductions up to Rs.4 lakh.
But the total amount claimed as tax deductions by both applicants cannot exceed the actual principal amount or the interest paid to the lender. Since the major component of your EMI is the interest outgo in the initial years of a home loan, borrowers can derive maximum benefits under the ITA provisions. The exemptions can be claimed in proportion to the share of each co-applicant.
Documents Required for a Joint Home Loan
When applying for a joint home loan, both applicants need to furnish the following requisite documents:
-KYC documents - identity proof, address proof
-Income proof - salary slips, Form 16, income tax returns (for self-employed individuals)
-Property documents - sale deed, previous deed, NOC from relevant authorities
Note: This is just an indicative list. Lenders may request submission of other documents, as and when necessary.
Summing Up
Home loan aid borrowers in improving their spending potential and investment threshold while keeping the credit liabilities manageable with a shared repayment burden. It also helps co-applicants and first-time loan applicants enhance their credit scores effectively. Since it is difficult to leave a joint home loan mid-way, prospective loan borrowers must carefully weigh the pros and cons before adding a co-applicant in their loan application.
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