From finding the right property to accumulating funds for the down payment of the home loan, realizing your dream of owning a house involves a host of tasks and decision-making. However, many cannot avail the quantum of home loan they seek. Some applicants are rejected due to their inability to meet the loan eligibility standards set by various lenders. This is where looping in a co-applicant can come to your rescue. Adding a co-applicant can also give you additional benefits.
Let’s look at the pros and cons of taking a joint home loan:
Enhances loan eligibility
Your home loan application may get rejected owing to, including insufficient income, low credit score, poor credit profile, low EMI affordability, etc. In such cases, looping in a co-applicant, with his/her own income source and good credit profile can enhance your overall loan eligibility.
As the co-applicant is equally liable for the repayment of the home loan, it reduces the credit risk for the lender, thereby boosting the chances of getting the home loan approved. As the income of the co-applicant is also considered while evaluating EMI affordability, adding a co-applicant can also help you in availing a bigger loan amount.
Similarly, as most home loan lenders require borrowers to complete their repayment by the time they are 70 years of age, those approaching their 60s are either rejected or forced to opt for shorter tenures and, thereby, pay higher EMIs. In such case, adding a co-applicant of younger age can help in taking a home loan with longer tenure.
More tax benefits
Home loan borrowers can avail tax deduction of up to Rs 2 lakh on the repayment of interest component for self-occupied property under Section 24b and up to Rs 1.5 lakh each financial year on account of the repayment of the principal component under Section 80C.
Since both the primary as well as co-applicant(s) can independently avail tax benefits as per their contribution toward repayments, looping in a co-applicant for your home loan can thus result in higher tax benefits. However, remember that the co-borrower(s) can avail these tax benefits only if they are also the co-owners of the concerned property.
Lower interest rates for women co-applicants
Many lenders offer concessions in home loan interest rates to women co-applicants. These interest rates are usually 5 bps lower than the rates applicable to male borrowers. Hence, lower rates extended to women home loan borrowers can further reduce your overall interest cost.
Adverse impact on credit score due to irregular repayments
Given that co-applicants are equally liable for the timely repayment of the joint home loan, any delay or default in the loan repayment can adversely impact the credit score of the co-applicant too. This will adversely impact the future loan and credit card eligibility of the co-applicant.
What to watch out for before looping in a co-applicant
While looping in a co-applicant, different home loan lenders have their own set of conditions pertaining to the relations acceptable.
Lenders mostly only allow spouses or immediate
blood relatives of the primary applicant to become co-applicants of the joint home loan. Some lenders may refrain from approving joint home loans to siblings or unmarried partners. However, in the case of co-owned housing properties, lenders usually compulsorily require all the co-owners of the property to become co-borrowers of the home loan.