In the present day, when the cost of living is going up and usually both spouses work, having a home loan co-applicant becomes more of a necessity than a requirement. There is no legal requirement to have a home loan co-applicant.
In order to enhance the loan eligibility, a borrower has an option to resort to by having a home loan co-applicant. This way, the total eligible income for the purpose of computing the housing loan increases, thereby resulting in higher loan eligibility.
Home loan co-applicant is a person who shares the equal responsibility towards the repayment of the home loan. Such type of home loans are called Joint home loans. Whereas a co-owner is the person who has a share in the property and rights on the property too. A co-owner of a property can be the co-applicant in home loan. But it is not necessary that the co-applicant of the home loan is the co-owner of the property.
Who can be a home loan co-applicant
A bank does not permit friends or relatives who are not blood relatives to take a loan jointly. Only if the co-applicant receives income from a regular source will that income be considered for determining the loan eligibility.
In most cases, spouse is the most common and preferred combination.
In case of parents and children , these rules will apply:
- Father/ Mother and son
If the applicant is the only son, he can jointly apply with his father with both the incomes being considered. The property should be in their names jointly and it does not matter who the main owner is. This is because in any case the son is the legal heir of the father’s property.
- Father/ Mother and sons
In case a person has two or more sons and if he wants to apply jointly with one of them, he should not be the main owner of the property. This is because, on his death, his children should inherit the property jointly and may cause an inheritance dispute.
The father may only be taken as co-applicant and his income may be considered for the loan. He may be a co-owner or not own the property at all. Under no condition should he be the main owner of the property.
- Unmarried daughter and Father/ Mother
An unmarried daughter can apply jointly with their father. However, the property should only be in the name of the daughter and the income of the father should not be considered . This is to avoid any legal complications on the subsequent marriage of the applicant .
Where applicant is the owner and has a son and a daughter, an affidavit may be obtained from the daughter that she has no claim on the property.
In case of Brother and brother/sister
Home loan co-applicant approval is subject to certain terms and conditions like address of both should be same which means a joint family and intent to stay together in joint family in future. It is at the sole discretion of the bank.
Who cannot be a home loan co-applicant :
- Father / Mother and Married Daughter
- Brother and Sister
- Sister and Sister
Documents Needed : Documents are needed from both the applicant and co-applicant.
General home loan documents needed are :
- Identity proof
- Address proof
- Salary slips
- Bank statements
A common doubt is – ‘Will the home loan eligibility amount increase if we opt for a joint home loan?’ Yes, it will. Banks will be ready to offer you higher loan amounts if you opt for a joint home loan. The reason for it is that your repayment capacity increases as there are now two people who repay this loan. How much it would increase depends on the income of co-applicant. Apart from income, organization reputation is also considered. Be sure that you compare multiple loan offers before deciding on loan eligibility.
Benefits of being a Home Loan Co-Applicant
- Increase Home Loan Eligibility :
If you are not the co-owner of property but would like to help your spouse or relative to increase their Home Loan eligibility. In this case, you may consider being home loan co-applicant. It is absolutely necessary that you should be aware of all the risks and legal liabilities.
- Taxation Benefits :
From a taxation point of view, a joint home loan is also beneficial as all co-borrowers can claim tax deductions under section 24 (upto Rs. 1.5 lakh) of the Income Tax Act against interest paid and under Section 80C (up to Rs. 1 lakh ) against principal repaid.
The tax benefits that can be claimed would be in proportion of the share that the individuals have in the loan.
Dis-advantages of being a Co-applicant
- CIBIL score of the co-applicant will be impacted.
- Reduced credit eligibility : Being a co-applicant will reduce the credit eligibility to the extent of 50% of home loan value. It may impact approval of any future credit requirement of co-applicant.
- Operational Hassle : It is an operational nightmare for home loan co-applicant at the time of availing or closing the home loan.
The repayment process for joint home loan is similar to that of a regular home loan. The payment, however, has to be made through one cheque.
Renu Sud Karnad, manging director, HDFC, explains, “Payments can be from a single or joint account by way of cheques or Electronic Clearing System (ECS).”
“Another way of repayment could be that the co-borrowers share the number of EMIs between them such that a specific number of cheques can be issued by one borrower and the balance by the other,” says Suvrat Saigal of Barclays Corporate India.
What if Dispute Arises
The problem arises when one of the co-borrowers refuses to repay the loan. Be warned that each party would be liable for part of repayment or up to as much as all of the repayments.
Renu Sud Karnad of HDFC says, “It does not matter whether the payment is made in the normal course by only one of the joint borrowers as long as the full EMI is paid as per schedule”.
In the event of default, the lender will proceed with the normal recovery process which may include a legal recourse against all joint borrowers.
- Agreement between all Home Loan Applicants –
To avoid any legal dispute in future, it is advisable to all home loan applicants to sign a separate legal liability agreement on a stamp paper. And get the paper notarized. This agreement will clearly segregate the liability of each party.
- Online Term insurance Plan –
What if bank insists on a co-applicant. If the bank insists only to hedge risk against home loan repayment, then a simple solution is that the primary borrower can buy an online term insurance plan and can submit a copy of a that policy assuring bank that bank that he is insured against home loan.
Joint home loans are definitely beneficial as compared to normal home loans. In case you are looking for a home loan and you can speak to your blood relatives to get a joint home loan, be sure that the EMIs are paid as per schedule.