Buying a home is not very easy, especially if you are salaried and are looking for a home loan. Sometimes you might have to settle for a home that’s a notch lower than the one you want in terms of location, space or amenities just because you are not eligible for a particular loan amount. That’s why you might need a joint home loan. A joint home loan is a home loan that taken by 2 or more people. So, instead of one applicant, there are several applicants or borrowers for a joint home loan.
Typically, working couples go for a joint home loan as this will help them be eligible for a higher loan amount. There are plenty of other benefits too. Here’s what you need to know.
Your co(mpanion) borrower
A co-borrower is the person who will be taking the home loan along with you. All co-borrowers will have to sign the same documents. A co-borrower can be part of the home loan without owning the property. Only blood relatives can be co-borrowers. In this itself there are many restrictions. Read this post for more information – Adding co-applicants to your home loan.
Financial institutions usually provide higher tenure loans for joint home loans. This is especially true for young couples who take joint home loans. Typically financial institutions provide home loans with tenures of 20-25 years for young working couples. Note that if the joint loan is taken by siblings or a parent and child, the loan tenure will be based on the age of the oldest co-applicant. For example, if you are applying for a loan with your father who is 55 years old, the tenure of the loan might be restricted to 10 years. This is because the financial institution doesn’t want to take on many risks associated with borrowers who are about to retire.
All the co-applicants to a home loan have to give their individual Know Your Customer (KYC) documents. They might also be asked to provide their bank statements for the last 6 months. Usually, financial institutions take into account the credit score of all co-applicants. They might ask the one with the highest credit score and higher income to be the primary applicant.
There might be many co-applicants to a home loan but only one of them can repay the loan. In case you want to share the home loan repayment, create a joint account, pool in the money and use the account for making the EMI payments. All co-borrowers are responsible for the repayment of the loan. So, if there is a default, all the borrowers will be held responsible.
Borrow a higher amount
Having more than one applicant to a loan means that the income of all the applicants will be considered to determine the loan eligibility. So, the more the applicants (assuming all of them are earning) the more loan you will be eligible for.
For example, let’s assume you are looking to buy a property worth Rs 80 lakh and you earn Rs 80,000 per month. Suppose the lender is willing to fund 80% of this amount. So, you can get a loan of Rs 64 lakhs. But given your income, will you eligible for this loan amount? Probably not. For an income of Rs 80,000 per month, given a loan tenure of 25 years and interest rate of 8.35%, you might be eligible for only a loan of Rs 50 lakh.
What if you add a co-applicant who earns Rs 40,000 per month? You could get a loan of up to Rs 83 lakh. So, you can easily buy that home that you want. All this is assuming that both you and the co-applicant have no other loans running. So, a joint home loan can help you get a higher loan amount.
In case of a joint home loan, both you and the co-applicant can get tax benefits in the proportion in which you own the home. Suppose your home loan interest repayment is Rs 4 lakh and principal repayment is Rs 1 lakh and you own the home equally along with the co-applicant. This means that you both own the home in the proportion 50:50. In this case, you can claim Rs 2 lakh as the tax deduction for interest repayment while your co-applicant can claim the other Rs 2 lakh out of the total of Rs 4 lakh.
So, if you are going in for a home loan, check if you can add co-applicants and buying that dream home will not be a dream anymore.