Availing a joint home loan becomes mandatory when the underlying property is owned by more than one individual. Lenders require the co-owners of a property to become co-applicants for availing home loans. In addition to this, many borrowers voluntarily opt for joint home loans to avail benefits like increased loan eligibility, higher loan amounts, higher tax benefits, etc.
Here are some important factors that one needs to factor in while availing joint home loans.
Enhanced loan eligibility: Lenders consider several factors for evaluating the credit risk profile of their home loan applicants. Chief among these factors are their income, credit score, EMI repayment capacity, age, occupation profile, employer’s profile, etc. Loan applicants failing to match the criteria set for any of these factors can lead to their loan rejection. In such cases, looping in an earning family member having a good credit profile as a co-applicant would increase the chances of loan approval. As the co-applicant would also become equally responsible for the loan repayment, adding co-applicant(s) reduces the credit risk for the lenders.
Similarly, as the income of the co-applicant(s) are factored in while evaluating the EMI affordability of a joint home loan application, adding a co-applicant can help in availing bigger loan amounts. However, note that if any of the co-applicants have poor credit score, it can adversely impact the chances of loan approval.
Eligibility conditions for co-borrowers: Lenders usually have a pre-determined list of relationships eligible for availing joint home loans. Most lenders allow spouses or immediate blood relatives like parents and children to become co-applicants in home loans. However, some lenders usually do not allow siblings to become co-borrowers fearing future property disputes while some lenders approve joint home loans to brothers in case they happen to be the co-owners of the property.
Similarly, two sisters are usually not allowed to become co-applicants due to the risk of stopping repayment contributions after their marriage. Similarly, brother-sister and unmarried partners are usually not allowed to avail joint home loans. However, unmarried daughters and their parents are allowed to be co-applicants if the daughters are the co-owners of their property.
Shared liability for repayment: The primary applicant and co-applicant(s) are equally liable for the loan repayment. In case of default in repayment, the lender will proceed against all the borrowers irrespective of their share in the property or their ratio of their repayment contribution. Thus, the death or disability of a contributing co-applicant may adversely impact the loan repayment. To avoid such situations, primary or key borrowers should opt for home loan insurance plans.
Tax benefits: Availing joint home loans allow the borrowers to avail higher tax benefits as all the co-borrowers can independently avail tax benefits available under Section 80C (up to Rs 1.5 lakhs) and Section 24b (up to Rs 2 lakhs). For example, if you add a co-applicant for your home loan, contributing equally to the EMIs, the total amount of deductions available through your home loan will increase to Rs 3 lakhs and Rs 4 lakhs under Section 80C and Section 24b, respectively. However, for availing these tax benefits, co-applicant(s) have to be the co-owner of the property. Moreover, the tax benefits can only be claimed according to the ratio of repayment contribution made by the primary and co-borrowers. Thus, joint home loan borrowers should always set their repayment contribution according to their income tax liabilities, with those having higher tax liability opting for higher repayment contribution.
Lower interest rates for women co-applicants: Some home loan lenders offer interest rate concessions of up to 5 bps to women home loan applicants or to loan applications wherein the primary borrower and/or co-owner is a female. Hence, those planning to avail joint home loans with female co-applicant should check with the lenders whether they would qualify for any concessional interest rates.
(An edited version of this article was printed in The Hindu)