Taking a Home Loan is a big responsibility to shoulder. There are multiple factors associated with a Home Loan and it’s not always possible to take this on single-handedly. Sometimes, things like eligibility, income, and the loan amount and tenure can be a tad difficult to handle with a single income. Everyone yearns for a place to call home. In most of the Indian cities, buying a home is still a distant reality for many people. With a stellar credit score and steady income, you may not face many difficulties in buying a house. In such cases, the applicant can choose to take a loan alongside a co-applicant. In other words, two people can apply for a single loan by being co-applicants and take over responsibility towards the loan.
Who is a Co-Applicant?
A co-applicant is an additional person considered in the underwriting and approval of a loan or other type of application. Applying for a loan with a co-applicant can help to improve the chances of loan approval and also provide for more favourable loan terms. Most of the banks in India allow a few specified relations to be co-applicants. Brother-brother, father-son, mother-son, husband-wife etc. are acceptable combinations to be borrowers and co-applicants.
Father and son - In the case of father and son, if the borrower is the only son, then, he can jointly apply with his father where both their incomes combined will be taken into consideration. The property must be in their joint names. In case a person has two or more sons and if he wants to apply jointly with one of them or both of them, then he should not be the main owner of the property. This is because, upon his death, his children should be legal heirs to the property jointly and may cause an inheritance dispute. In this case, the father can only be taken as a co-applicant and his income may be considered for the loan.
Unmarried daughter and father - An unmarried daughter is eligible to apply jointly with her father. In this case, unlike father and sons, the property has to be only in the name of the daughter and the income of the father should not be considered. This is to avoid any legal complications later on when the applicant (daughter) gets married.
Unmarried daughter and mother - An unmarried daughter is eligible to apply jointly with her mother. In this case, unlike father and sons, the property has to be only in the name of the daughter and the income of the mother will not be considered.
Brother and brother - A brother may apply with his brother, provided they are currently staying together and are determined to do so in the new property as well.
Husband and wife - One can include one’s spouse as a co-applicant for a Home Loan. His or her income will be included for working out the loan eligibility. In fact, from a bank’s perspective, this is an ideal situation and they would be very happy to have the husband/wife as co-applicants.
Based on the above, the following relationships cannot be a co-applicant for a loan:
Married daughter & mother/father
Sister and sister
Sister and brother
Role of a Co-Applicant
A co-applicant is completely responsible for the loan in case the partner defaults, dies or otherwise refuses to participate in the partnership. The bank will pursue collection from one applicant without consideration of the partnership agreement. Technically, a co-applicant becomes a co-borrower and by being a co-borrower, he is liable for the repayment of the loan and other dues.
Thus, a co-applicant becomes equally liable for repayment of the loan amount in case of non-payment by the borrower. The co-applicant will also be responsible for the repayment of the loan in case of death of the primary borrower, even if there is insurance cover to the primary borrower. Many banks and financial institutions insist on having a co-applicant but it is more of a necessity than a requirement. There is no legal requirement to have a co-applicant.
Advantages of Being Home Loan Co-Applicant
Increase in loan amount: One of the most visible benefits of a joint loan is the increase in the eligible loan amount. Banks usually prefer EMIs to be 40%–45% of the applicant’s monthly income. As the amount sanctioned for a loan is directly proportional to your income, a joint loan application hikes your potential loan amount by almost two times, provided the co-applicant has a steady source of income.
Tax relief: In the case of a joint loan, co-borrowers need to be co-owners as well to avail tax benefits on the home loan. These benefits work best when the husband and wife are co-applicants.
Tax benefit on principal amount: Here, you can claim deductions of up to Rs. 1.5 lakh under Section 80C. Further, you can save tax on the amount paid for stamp duty and registration.
Tax benefit on interest amount: The maximum deduction allowed under Section 24B for a self-occupied property is Rs. 2 lakhs. This deduction can be claimed yearly. An important point to note is if you are unable to acquire or complete the construction of the property within 3 years of taking the loan, the interest benefit will fall to Rs. 30,000 from Rs. 2 lakhs.
Additional Reading: 4 Ways Taking a Joint Home Loan Can Save You Lakhs
Buying a home could mean heavy expenditure for many people. A lot of times, people have to rely on loans to fulfil their dream of owning a home. In such a scenario, taking a joint home loan can act as a breather. In other words, two people can apply for a single loan by being co-applicants and take over responsibility towards the loan.
1. Can a friend be a co-applicant for a home loan?
A. No. A co-applicant has to be a family member of the primary borrower to be eligible to be a co-applicant for a home loan.
2. Can having a co-applicant increase the chances to get a home loan?
A. Yes. When the primary borrower has a lower chance to get the sanction of a home loan due to less credit score or lower income or any other reason, having a co-applicant will increase the chances of getting the sanction of a home loan.
3. Can co-applicants also avail the tax benefits for home loan repayments?
A. Yes. Both the co-applicants can get the tax benefits for the repayment of home loan up to the extent paid by them individually.