Benefits of having a home loan co-applicant

Who is a co-applicant?

In a solidarity home loan, you can add up to nearly 7 co-applicants, which lightens your repayment burden. All co-applicants must contribute to the repayment of the loan, substantially equalizing the burden of the EMI for each individual. If the lead applicant is unable to repay the loan for any reason, the co-applicant is required to make up the repayment. A joint home loan reduces the risk of default and guarantees lenders timely repayments.

As a safeguard and prudent underwriting practice, lenders may require all co-owners of the property to become co-applicants, for greater accountability. However, a co-applicant does not necessarily co-own the property with you.

Before applying for a home loan, you are advised to check the credit rating of all co-applicants to ensure clarity of collective credit history and repayment records. Even if there is a case of a minor late payment on an old credit card or an incorrect statement by a financial institution, it could hurt your credit score, reducing your chances of getting approved for a ready.

Who can be a co-applicant?

Immediate family members are considered eligible as joint home loan applicants. This includes:

-Parents

-Joint

-Brother

-Children

To note: Although this is a generic list of acceptable co-applicants, a specific lender may have caveats on certain combinations of co-applicants.

Benefits of having a co-applicant

The advantages of a collective mortgage are numerous compared to an individual mortgage. These are:

> Eligibility for higher loan amount

Sometimes an individual’s income may not be enough to get a loan approval for a large principal amount. However, when you add another eligible co-applicant, lenders will consider the income levels of both, and you could secure up to 90% of the property’s value as the loan amount.

Combined finance automatically increases your home loan eligibility and increases your chances of qualifying for a higher home loan principal. This allows borrowers to purchase a larger home due to an increase in the loan budget.

>Lower interest rates

Most lenders in India give lower interest rates to female borrowers. So, if the co-applicant is your wife or mother, you can qualify for lower home loan interest rates, which are up to 10 to 25 basis points lower than the usual interest rate. Other than that, having a co-applicant improves your home loan eligibility, making you an ideal candidate for a low-interest home loan.

>Tax advantages

Co-applicants can claim home loan tax benefits individually on the loan, resulting in significant savings under the Income Tax Act. Discounts available to all co-applicants include:

Section 80C – Each applicant can claim reductions of up to Rs.1.50 lakh per annum, or Rs.3 lakh in total, for repayment of loan principal.

Article 24 – Both applicants can enjoy benefits of up to Rs.2 lakh each, per annum, for interest paid on the home loan with combined deductions of up to Rs.4 lakh.

But the total amount claimed as tax deductions by both claimants cannot exceed the actual amount of principal or interest paid to the lender. Since the main component of your EMI is interest expense in the early years of a home loan, borrowers can derive the maximum benefit under the provisions of the ITA. Exemptions may be claimed on a pro rata basis from each co-applicant.

Documents required for a joint home loan

When applying for a joint home loan, both applicants must provide the following required documents:

-KYC documents – proof of identity, proof of address

-Proof of income – payslips, Form 16, tax returns (for self-employed)

-Documents of ownership – deed of sale, previous deed, NOC from competent authorities

To note: This is only an indicative list. Lenders may request the submission of other documents, if necessary.

Summary

Home loan helping borrowers improve their spending potential and investment threshold while keeping credit liabilities manageable with a shared repayment burden. It also helps co-applicants and new loan applicants to improve their credit score effectively. Since leaving a joint home loan mid-term is difficult, potential borrowers should carefully weigh the pros and cons before adding a co-applicant to their loan application.

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