Besides the benefit of availing a larger home loan, joint home loan owners realize the lessened cost of the home due to substantial tax benefits. Shared responsibility in repaying the loan also lowers the burden of loan repayment.
Buying your dream home may not be easy. However, with banks and non-banking financial companies eager to extend loans at competitive rates, the dream to shift to your choice of abode may not be far-fetched. You may either apply for an individual home loan or seek a joint loan with someone to share your debt burden. Not many people are aware that as many as six co-applicants can apply for a joint home loan.
Who can be a co-applicant in a home loan?
Not anyone or everyone can show interest in being a co-applicant. Banks or finance companies accept joint home loan applications from couples, or with parents or own siblings. This means that joint loans are given to married couples or parents, siblings or children. The co-applicants in a joint home loan can be either salaried or self-employed. Moreover, even Non-Resident Indians are also eligible to be co-applicants.
Those new to the concept of home loans often misconstrue co-applicants as co-owners. Co-applicants or co-borrowers need not enjoy any ownership in the property as opposed to the co-owner who is also a joint owner of the property. This implies that co-owners of the property can be co-applicants in the loan, but not vice versa. If spouses are co-applicants, then the co-ownership of property is not mandatory.
Benefits of applying for joint home loans
It makes sense to take a single home loan if you are eligible for the loan as a single applicant. However, there are immediate benefits that you must not ignore if you opt for a joint home loan with your wife or your immediate blood relative.
- Higher loan eligibility: Two or more people pooling their income together to make a joint loan application means increased ability to repay a higher loan amount. This heightens the eligibility of applying for a higher loan amount and consequently the affordability to buy a bigger house.
- More tax benefits: Co-applicants applying for a joint home loan are also eligible for separate tax deductions provided that they are also co-owners of the property and have been contributing towards the loan repayment. During loan repayment, a part of the equated monthly instalment (EMI) goes towards interest payment while the rest towards principal loan amount repayment.
Under Section 80C of the Income Tax Act, co-applicants are eligible for deduction from income up to Rs 1.5 lakh. For self-occupied property, home loan interest payments attract tax deduction up to Rs 2 lac under Section 24 of the Act. For properties let out on rent, co-applicants can claim the interest amount towards tax deduction. In a joint home loan, every co-applicant is eligible for the aforementioned deductions, thus, giving higher tax benefits compared to a single home loan taken.
Co-applicants of the home loan taken are not entitled to entire tax benefits. Rather they can seek tax relief in proportion to their contribution towards interest and principal amount subject to the limits given in the Act. The co-applicants can, therefore, plan the loan amount needed and their contribution depending on how much tax benefit they would like to avail.
- Lower interest for women co-applicants: Some banks offer special home loan interest rates to their women customers. The difference in the interest rate may look very less at the outset. However, you can save a lot on loan repayment when you calculate the total interest outgo on the principal loan sought. To benefit from the discounted interest rate, you may consider declaring your wife or sister or mother as the co-applicant in the loan documents who may also be the joint owner or the sole owner in the property bought.
- Rebuilding credit: Your credit score holds the key to future loan opportunities. If you have had a weak credit score due to certain loan defaults in the past, taking a joint home loan with someone with a higher credit score can help. This is because when you co-borrow with someone, details of the debt will not only show up on your co-applicant’s credit report but your credit report too. Planned loan repayments and a well-managed joint account can go a long way in improving the credit history that can be of immense help over the period. All you have to do is to ensure that both you and your co-applicant(s) do not fall behind on loan repayments.
The author, Atul Monga, is co-founder and CEO at BASIC Home Loan. The views expressed are personal