Sep 20, 2022
Listen Should you add a co-applicant to your home loan?
Although buying a house is the biggest dream for most of us, it is a huge investment that usually requires financial support. Many banks and housing finance companies offer home loans at attractive interest rates that can help you achieve the goal of owning your home. However, in many cases, the home loan application is rejected due to several reasons such as poor credit score, ineligibility due to lower income, lack of required documents and many more. In such cases, in order to get the home loan application approved, many applicants prefer to add a co-applicant. If you’re considering a home loan and aren’t sure if you should add a co-applicant to your home loan, this article will answer all your questions.
Before we dive in, let’s first understand who a co-applicant is;
A home loan co-applicant is someone with whom you jointly apply for a home loan. He then becomes a co-borrower of the home loan with equal repayment responsibilities. The co-applicant does not have to be a co-owner of the property you are buying through a home loan. However, all co-owners of the property must be co-applicants of the loan.
Who can be a co-applicant in a home loan?
There are specific relationships who can co-apply for a home loan in India, provided they are not minors.
Here are some common and acceptable relationships that can co-apply for a home loan:
A married couple is the most common relationship that co-applies for a home loan. In many homes in metropolitan cities, both partners work and prefer to own the property jointly. Additionally, having two winning co-applicants increases loan eligibility.
Father and son :
A father can only take out a home loan with his son if he is the only child. In this case, any of them can be the primary owner. But if the father has more than one son and wants to take joint and several loans with them, the father cannot be the principal owner.
Parent and daughter:
A mother or father can co-apply for a home loan with their unmarried daughter, as long as the property is in a daughter’s name. They cannot apply with a married girl.
Many lenders allow two siblings to be co-applicants only if they are co-owners of the property they are buying, share the same residential address at the time of applying for the loan, and intend to continue living together.
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Here are some relationships that cannot co-apply for a home loan:
Parent and married daughter
Unmarried couples (cohabitation relationships)
What are the benefits of adding a co-applicant to your home loan?
Adding a co-applicant to your home loan has several benefits, such as;
1. It increases your loan eligibility:
Banks and HFCs have several eligibility criteria for a home loan. Some applicants do not meet all the criteria, which leads to the inability to obtain approval for the required amount or even the rejection of the application. However, when approving your home loan application, lenders consider the eligibility of all co-applicants. Therefore, adding a co-applicant to your home loan may increase the chances of loan approval and/or make you eligible for a higher amount. For example, suppose you need a home loan of Rs 75 lakhs, but qualify for a home loan of Rs 60 lakhs from your preferred bank. In such a case, if you have a working spouse and you both agree to apply jointly, the bank will consider your spouse’s eligibility in terms of age, income, current outstanding debts, credit history, credit score, etc. Now, if your spouse is eligible for a home loan of Rs 30 lakhs, you can jointly opt for the required amount of Rs 75 lakhs or opt for a higher amount to cover domestic and similar expenses covered by a home loan. Keep in mind that if the co-applicant has a high debt ratio or poor credit score, your home loan application may be rejected. It is therefore crucial to verify the eligibility of all co-applicants before co-applying for a home loan.
2. You can take advantage of a lower interest rate for women:
Most home lenders offer an interest rate of 0.05%, which is 5bp lower for female borrowers. To benefit from this advantage, a female applicant can be a main applicant or a co-applicant. However, a female applicant can only receive the benefit if she is the sole owner or co-owner of the purchased property. Also, when approving the loan, most banks consider the applicant’s credit history and ability to repay.
3. Tax benefits for all co-applicants:
You may be aware that landlords may receive tax benefits under Sections 80C and 24b of the Income Tax Act. You can claim up to 1.5 lakhs for repayment of principal under Section 80C and up to Rs 2 lakhs for interest paid on a home loan under Section 24b. When it comes to a joint home loan, all co-applicants can claim tax deductions under the Income Tax Act, provided that the co-applicants are co-owners of the property for which the home loan is taken .
What are the disadvantages of adding a co-applicant to your home loan?
While there are several benefits to adding a co-applicant to your home loan, there are some things you need to know when co-applying for a home loan. Banks and HFCs generally consider the eligibility and repayment capacity of all co-applicants. The loan will only be approved if all co-applicants meet the eligibility criteria. Therefore, if any of the co-applicants have a poor credit score, high debt ratio, or do not meet the lender’s eligibility criteria for any reason, this may negatively impact your approval. loan and may even lead to a mortgage application. rejection. Home loan rejection not only takes your time and money but also affects your credit score.
Apart from this, in the eyes of the credit bureaus, all co-borrowers are also obligated to repay the loan. Thus, if a co-applicant does not make the monthly repayments on time, it can also negatively impact the credit rating of other co-applicants.
Should I add a co-applicant to my home loan?
While adding a co-applicant is beneficial to increase eligibility for your home loan and obtain the lower interest rate and maximum tax benefits, it is essential to analyze eligibility, repayment capacity and l potential co-applicant’s repayment history. If your co-applicant is financially unruly, their poor credit history may result in your home loan being rejected. Likewise, irregular home loan repayments in the future can affect your credit score. Therefore, make sure your co-applicant is financially disciplined and has a good credit history. A home loan is a long-term commitment; hence, you should take every precaution to make it a smooth trip.