Owning a home is a major aspiration for almost everyone and this is something that indicates financial security more than anything else. A home loan is something that will enable you to purchase your dream abode. However, what happens when you do not fulfill the income or eligibility criteria? You have to apply for a home loan by getting a co-applicant/co-borrower on board.
A co-borrower can be any immediate family member who is either self-employed or salaried and should be a resident of the country. Depending on their policies, lenders can allow a maximum of 6 co-applicants which may include siblings, your spouse or parents. Married couples are mostly preferred and banks usually decide on the repayment tenor based on the retirement age of the applicant who is older. There are several benefits of a joint home loan account since the eligibility goes up for a bigger loan and at a better rate of interest. Lenders consider joint income of co-applicants for working out repayment capability. However, banks may insist on all co-applicants being the co-owners of the property in question.
A joint home loan also benefits both co-applicants since they get tax deductions equally and separately. However, they have to be co-owners to get these tax benefits and should contribute towards repayment of the home loan. As per the current provisions, principal repayments merit deductions up to Rs.1.50 lakh under Section 80C. In case of interest repayments, tax deductions are given up to Rs.2 lakh under Section 24 in case the property is a self-occupied one. In case the property is rented out, the entire interest repaid will be eligible to earn tax deductions.
These tax deductions are a major benefit for the entire family each year. A couple should mutually agree on the ownership share between themselves for maximizing tax benefits. They should be co-owners and co-borrowers in a ratio of 50:50 for getting deductions in the equal proportion. This can be 60:40 or 70:30 depending on the tax bracket in which the co-borrower is slotted into. In case one borrower has a higher income, a bigger share can help in getting more tax benefits. The actual amount of tax benefits is provided in proportion to the contribution towards repayment of interest and principal.
Co-applicants can thus have a role to play in deciding the quantum of tax benefits that they desire and the proportion to be paid by each applicant. In case of female applicants, there are differentiated interest rates, which are slightly lower than regular home loan rates. However, the applicant has to be the joint/sole owner of the property and an applicant/co-applicant for the home loan in question. Joint home loan applicants can repay their EMIs through a joint/single account through ECS or cheques. Some financial institutions may even allow sharing of EMIs by co-borrowers.
One borrower can repay all the installments while the other borrower can easily refund his/her share through cheque/fund transfer to the account. The credit score and report will be evaluated by lenders and one should always keep a tab on the credit score and report and also check the same in case of the co-applicant. A lower score for one applicant will affect overall chances of getting a home loan. The documents needed for joint home loans include KYC (identity and address proof) documents, income documents and so on. The documentation procedure is quite similar to applications for individual home loans. One should avoid a joint home loan in case the co-owner has a lower credit score on account of a poor repayment history or if he/she is already paying off any loan that has taken up a major part of his/her eligibility. This should also be avoided in case the co-applicant is planning to retire or buy a bigger home in the future.
A joint home loan helps in saving money in terms of tax benefits and also instills a sense of responsibility with regard to sharing the duty towards owning a home. This inculcates financial discipline and more prudence and both partners have something to be proud about. Couples should always have a basic monthly financial plan ready before applying for a joint home loan.