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Home / Money / Personal Finance /  Is it a good decision to add a co-applicant to your home loan?
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A joint home loan allows two or more family members to avail a home loan with shared repayment responsibility. Most people opt for such a loan to improve their home loan eligibility or reduce the interest cost. Lenders require applicants to compulsorily add in their co-owners as co-borrowers for properties co-owned by two or more family members.

Pros of joint home loan

Improves loan eligibility: Lenders consider several factors while evaluating home loan applications, chief among them being income, credit score, credit profile and equated monthly instalment (EMI) affordability. In such cases, looping in an earning family member with a good credit score as a co-applicant can enhance loan eligibility.

Ratan Chaudhary, head - home loans, Paisabazaar.com, said, “Adding a co-applicant further reduces the credit risk for lenders, given that co-applicants are equally responsible for loan repayment. This process can help improve the chances of getting the loan approved."

Chaudhary further said, “Lenders also consider the income of the loan applicant while calculating EMI affordability. Adding a co-applicant may help avail the bigger loan amount. Also, as most lenders require borrowers to repay the loan by the time they are 70 years of age, loan applicants approaching the 60s may either be rejected or asked to opt for shorter loan tenure and higher EMIs. Adding a younger co-applicant may help such borrowers avail loans with a longer tenure."

Higher tax benefits: Repayment of home loan qualifies for income tax deductions. The repayment of interest component of up to 2 lakh for self-occupied property qualifies for tax deduction under Section 24B of the Income Tax Act. Similarly, the repayment of the principal component up to 1.5 lakh each financial year qualifies for tax deduction under Section 80C. Both the primary applicant and co-applicants can independently avail of these tax benefits as per their contribution towards loan repayment. “Adding a co-applicant can help yield higher overall tax benefits. However, note that co-applicants can avail these home loan-related tax benefits only if they co-own the concerned property," said Chaudhary.

Avail lower interest rate for female co-applicants: Many home loan lenders offer concessions in home loan interest rates to female co-applicants. Adhil Shetty, CEO, BankBazaar.com, said that several banks and non-banking financial companies (NBFCs) provide their lowest home loan rates to female borrowers. Year after year, we have seen women take bigger home loans on average than men.

“Women are stepping forward not just as the primary borrowers of these home loans but also as co-applicants to loans taken by their husbands. Lower rates make it easier for families to pay off their dues quicker," Shetty added.

The flexibility of repayment: While availing of a joint home loan makes both primary applicant and co-applicant equally responsible for home loan repayment, they have the freedom to share the EMI repayment burden.

Cons of joint home loan

Adverse impact on the credit score in case of non-repayment of EMIs: You must know that co-applicants of home loans are equally liable for the timely repayment of the loan. Besides, credit bureaus also capture any delay or default of home loan EMIs in the credit report of both primary applicant and the co-applicant. So, this way, it can negatively affect the credit score of primary applicants and co-applicants.

Shetty said, “Bear in mind that any problems between co-applicants can lead to difficulties in repaying the loan, which could impact both borrowers’ credit histories. In the most extreme cases, their property could be repossessed by the lender to recover the unpaid dues."

Who can qualify for co-applicant in a home loan: Lenders usually only allow spouses or other immediate blood relatives of the primary applicant to become co-applicant, but some lenders may not approve joint home loans to siblings or unmarried partners. Lenders usually require all the co-owners of the property to become co-borrowers of the home loan.

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