A home is a one-time investment for many people in India. Therefore, most people want to ensure that their home is big enough for their future. In India, affordability determines many factors surrounding a home, be it the size, location or quality. With the availability of home loans in the country, affordability has risen for many home buyers. However, one’s home loan eligibility depends on their age, income level, existing loans that are being repaid, etc. Lenders often have strict norms that determine an applicant’s home loan EMI in combination with all the other loan EMIs presently being repaid. The EMI cannot exceed a certain income level or take-home pay of the applicant.
Not many people can afford to showcase sufficient income to avail a home loan or justify the EMI repayment capability. This is when the need for a co-applicant comes into the picture. Here we will highlight the benefits of apply for a home loan with a co-applicant.
Does home loan eligibility improve with a co-applicant?
To increase your home loan eligibility, you can add a co-applicant who has an independent income source. The lender will consider the co-applicant’s income while assessing the main applicant’s repayment capacity. Therefore, there are higher chances of the loan amount being approved with a co-applicant.
In most cases, an immediate family member can be a co-applicant in a home loan. The co-applicant can be salaried or self-employed. Non-Resident Indians or NRIs are also eligible to be co-applicants.
What is the difference between a co-applicant and co-owner?
It is important to understand the difference between a co-owner and a co-applicant before making a home loan application. A co-owner is a joint owner of the house or property. A co-applicant, on the other hand, may not necessarily be a part-owner of the house or property. The key factor is that co-owners of a house or property have to be co-applicants of the home loan. However, all co-applicants need not be co-owners since only their income is considered for loan approval.
What are the benefits of adding co-applicant to home loans?
There are two primary benefits of a joint home loan:
- Higher loan eligibility:
By pooling incomes of applicants and co-applicant together through a joint home loan, the eligibility of the applicants’ increases and they can avail a higher loan amount. This way, they can afford a bigger or better home through a joint loan.
- Higher tax benefits:
By making a joint home loan application the co-applicants can enjoy tax deduction on home loans separately. This is, provided they are both co-owners of the house or property and each of them contributes to the home loan repayment. Here are some important points to note on tax benefits:
- Principal repayments can be claimed as deduction under Section 80C of the Income Tax Act up to a maximum of Rs. 1.50 lakhs.
- Interest payments on home loans can be claimed as tax deduction under Section 24 up to a maximum of Rs. 2 lakhs if the house or property is self-occupied. In case the house or property is let out, the entire interest amount is eligible for a tax deduction and there is no maximum limit.
In the case of a joint home loan, each co-applicant is individually eligible for the above-mentioned deduction. Thus, the collective tax benefits are larger when compared to single applicant loans.
The final amount of tax benefit available for each co-applicant is in proportion to his/her contribution towards principal and interest repayment. This is, subject to the limits stated above. Co-applicants can thus plan the amount of tax benefits to be availed and thereby decide the proportion of a loan that each will repay.
What factors should you consider while making a joint home loan application?
While in most cases it can be beneficial to take a joint home loan, mentioned below are situations in which one should avoid applying for a joint home loan:
- An applicant’s eligibility as a single applicant meets the loan requirement.
- An applicant has a low credit rating due to poor credit history.
- The applicant is repaying an ongoing loan which is as per his/her maximum loan eligibility.
- The applicant is currently purchasing a lower value property and has intentions to purchase a larger property for self-occupancy in the future.
- An applicant is about to retire in the near future.
Home loan repayment is the joint and also individual responsibility of all home loan co-applicant. Loan repayments can be made in any way that is comfortable for the applicants either by separately making the EMI payment or through a joint bank account.
To avail of a home loan quickly and smoothly, it is essential to furnish proper home loan documents including KYC (proof of identity and address), income and property papers. These documents are considered by lenders before processing a home loan application. KYC documents of all co-applicants must be submitted to the lender, however, income proof of only co-applicants whose income is considered for loan appraisal must be submitted.
A joint home loan is beneficial in acquiring a better and larger home and also in bringing down the total cost of a home through higher tax benefits. More importantly, the shared responsibility of home loan servicing also brings down an applicant’s loan repayment burden.