Many working couples will find it useful to apply for a joint home loan. This makes them eligible for a higher loan amount. One partner must apply as the primary borrower while the other applies as a co-applicant. Who is a co-applicant? Co-borrowers are co-applicants. Are they co-owners of the property too? This needn’t always be true. While co-owners need to be co-borrowers, all co-borrowers needn’t be co-owners. What does this mean? If a person is applying as a co-applicant for a home loan along with you, they needn’t own the property. They can take on the loan without owning the property.
Now the question is who can be a co-applicant. Can anybody be a co-applicant? No. There are certain rules regarding adding co-applicants to a home loan. But first, you must understand the advantages of having a co-applicant.
Advantages of a co-applicant
As mentioned earlier, if you add a co-applicant to your home loan, your loan eligibility will be higher. This is because the income of all applicants will be considered for determining the loan amount. However, the co-applicant has to have a regular income.
Also, all applicants for a loan including co-applicants will be equally liable to pay the home loan. You can ask your co-applicant to pay a part of the loan.
One of the best advantages of a co-applicant is that they can also claim tax benefits just like the primary applicant. These tax benefits can be availed under Section 80C and Section 24 of the Income Tax Act. Under Section 80C, the maximum limit is Rs. 1.5 lakh and for Section 24, it is Rs. 2 lakh. The former provides tax benefits for principal repayment while the latter gives you tax benefits for repayment of the interest on your home loan. However, there is a condition. All applicants can claim tax deductions only in the percentage in which they own the property. For example, if there are 2 applicants and they own the property in the proportion 50:50, then, each of them can claim 50% each of the principal and interest repaid. What if they don’t own the property? Then, they can’t claim any tax benefits.
What if the principal and interest paid are more than maximum limit under Section 80C and Section 24? Then, they can only claim up to the prescribed limit. For instance, let’s suppose the total interest for a home loan during a year is Rs. 8 lakh while the total principal repayment is Rs. 6 lakh. If there are many co-applicants, they can claim only Rs. 1.5 lakh for principal repayment and Rs. 2 lakh for interest repayment.
Now, who can be a co-applicant? Let’s find out.
Anybody and everybody cannot be your co-applicant for a home loan. Banks accept only certain relatives of a customer as co-applicants for their home loan. So, you cannot apply for a home loan along with your friends or those who are not your blood relatives. Who can be your co-applicant? A co-applicant can be your spouse, parent or sibling. The terms for adding the co-applicants vary from one bank to another. It is important to check with your bank before filling in your home loan application.
Couples – A wife and a husband can be co-applicants for a home loan. They needn’t be co-owners of the property. For instance, a husband can buy a home in his wife’s name. However, the tenure of the home loan will be decided based on the age of the oldest applicant.
Brothers – Two brothers can apply for a home loan together but a sister and a brother cannot apply for a home loan together. Even in the case where two brothers apply for a home loan together, banks might insist that both the brothers stay on the same property. There are also cases where brothers have to be compulsorily co-owners of the property if they are co-applicants. Unfortunately, banks don’t grant loans if two sisters apply for a home loan together.
Parent – Got a minor child? You cannot have them as a co-applicant even if they are earning an income. A father and son can apply for a home loan together but both of them have to be co-owners. Also, the maximum term of the home loan will be limited to the retirement age of the father in this case. Just as two sisters cannot apply for a home loan together, a married daughter and her parent cannot apply for a home loan together. However, an unmarried daughter can apply for a joint home loan along with her father. In this case, banks might insist that the property is only in the daughter’s name and the daughter be the primary applicant. This is just to avoid disputes after the daughter gets married.
All Know Your Customer (KYC) documents such as ID and address will be required for all borrowers. Also, the credit scores of all applicants applying for a joint home loan will be considered. Documents like proof of income and bank statements of all the applicants have to be submitted. Banks might also require you to submit proof of co-ownership.
What if the property that was bought under a joint home loan comes under dispute? In this case, all the applicants and owners will be equally responsible for the settlement of such disputes. What if there is a default on the home loan? Then, the bank will take action against all the applicants or borrowers.
Once you have decided to add a co-applicant to your home loan, check with your bank regarding the terms and conditions before applying.