A home loan application being rejected can cause many troubles, one of the major ones being the inability to achieve your dream of owning a home. However, there are many ways to ensure that your home loan application goes through. One such is adding a co-applicant. Before using this option, it’s important to measure the pros and cons of a joint home loan.
Who can be a home-loan co-applicant?
All joint owners of a house or property must be co-applicants in a home loan. However, the opposite is not true.
Banks and lenders specify categories of individuals in certain relationships who are allowed to be co-applicants for a home loan. These can be:
- a father and son
When it comes to other relations, there are certain restrictions. A father-unmarried daughter or a minor cannot be a home loan co-applicant.
Therefore, if you wish to enroll your friend as a co-applicant, it is important to note that this will not be accepted by banks and lenders.
What is the liability of a co-applicant?
A co-applicant need not necessarily be a co-owner of the house or property for which a home loan is sought. However, while borrowing a home loan a co-applicant becomes equally liable to pay back the loan, just as the primary applicant. In case of the primary loan applicant defaults, the bank or lender can recover the loan from the co-applicant.
How does having a co-applicant in a home loan benefit you?
Increases loan eligibility
Home loan borrowers often find it difficult to get their home loan application approved due to failure in meeting the various eligibility criteria set by the bank or lender. Some of the eligibility criteria may be around minimum income level, credit score, debt to income ratio, etc.
- Adding a co-applicant to the home loan application increases the overall loan eligibility.
- You can even get a higher loan amount if applying with a co-applicant.
- Taking a joint home loan with a co-applicant who has a high credit score and good repayment capacity improves your chances of easily qualifying for it.
- It is important to ensure that the primary and co-applicants debt to income ratio is within 50-60%. If it goes beyond the said percentage, it can lead to loan rejection or you may have to opt for a home loan with a significantly high interest rate.
More tax benefits
If you are a homebuyer, you may be aware of the various tax benefits available on a home loan as per Section 80C and 24b of the Income Tax Act.
- The interest paid on a home loan can be claimed as a deduction under Section 24b. The maximum amount can be Rs. 2 lakhs per year.
- The principal repayment of a home loan is eligible for deduction under Section 80C. The maximum amount can be Rs. 1.5 lakh per year.
With a joint home loan application, co-borrowers can separately avail of these tax benefits. It is important to note, however, that the co-applicant can avail of tax benefit only if he/she is the co-owner of the house or property for which the home loan is being used. Only co-borrowers who are also co-owners can claim the tax benefits.
Lower interest rates if co-applicant is a woman
Many lenders offer better interest rates on home loans with women as co-applicants. These rates can be approximately 0.05% (5 bps) below the standard interest rates offered by most lenders. To avail of interest rate concessions, women can either be the sole or joint owner of the house or property. This applies to women who are primary or co-applicants of the home loan.
Most banks and lenders check for the co-applicant woman’s income at the time of assessing the home loan eligibility and repayment capacity.
Important factors to note before applying for a home loan with a co-applicant
Here are some factors to bear in mind while making a joint home loan application:
- Banks and lenders consider a joint loan application based on both the primary and co-applicant’s age, credit scores, income, debt to income ratio, etc. In case the co-applicant’s credit score is low, the loan application may be rejected. This is because banks and lenders avoid lending to those who do not have a good credit repayment track record.
- Lenders usually approve a joint loan application provided both primary and co-applicant’s repayment capacity meets expectations.
- Rejection of a home loan application can bring down your credit score. In case some of the eligibility criteria are not met, lenders may lend the home loan at a higher interest rate instead of completely rejecting the loan application.
Considering all these points, you must ensure to validate the benefits of applying for a home loan with a co-applicant. You should opt for it only if you know all the terms and conditions attached to such loan applications.
1:What are the benefits of adding a CO-applicant in a home loan?
Adding a co-applicant to a home loan comes with many benefits such as the possibility of easier loan approval, lower interest rates, longer loan tenure, income tax benefits, etc.
2:Can we add a co-applicant in the existing home loan?
To add a co-applicant to an existing home loan, you must reach out to the bank or lender and request for changes to the loan terms including the addition of a co-applicant.
3:Is co-applicant mandatory in housing loans?
A co-applicant is not mandatory while availing of a home loan. However, in absence of one, it is essential to have a personal guarantor.
4:How many co Applicants can be on a home loan?
Most banks and lenders allow one co-applicant per home loan application. This, however, depends on the terms laid out by the bank.
5:Does being a co-applicant affect your credit?
Being a co-applicant may not directly affect your credit. However, in case of non-payment of dues towards a loan that involves a co-applicant, it can impact his/her credit score.
6:How do I remove a co-applicant from a loan?
To get a co-applicant removed from a loan, you can reach out to the bank or lender. You will have to provide a valid reason for this move and furnish proof of sufficient individual income to justify this decision.
7:What is the difference between a co-applicant and joint applicant?
There is no difference between a co-applicant and joint applicant.