Should you add a co-applicant in your home loan application?
Shaji Varghese
A home is one of the most important assets that you invest in your lifetime. Buying a home is capital intensive in nature that demands huge investment. Moreover, rapid urbanisation has led most of salaried and self-employed professionals migrate to urban cities and there has been a sharp increase in the purchasing parity of these individuals in the past few years. Your home loan eligibility, if applied individually, may not meet your requirement. So how can one avail a larger home loan? The solution is simple. Apply for the loan jointly with a co-applicant. With this, you can increase your chance of getting a higher loan due to combined incomes of applicant and co-applicant.
Who can be co-applicant for home loan?
A joint home loan is a housing loan which is taken by more than one person and re-paid with equal financial responsibility. In such scenarios, you can have the following as your co-applicant:
- Married couples
- Father and son (Where son is the primary owner in case of multiple heirs)
- Father and unmarried daughter (The daughter is the primary owner of the property)
- Brothers (in case of co-owned property)
- You and your company in case you are a businessman/woman
Benefits of having a co-applicant
Increase in loan eligibility: Loan is sanctioned after assessing the repaying capacity of the applicant/s based on the income. By clubbing or adding the income of the co-applicant, you can meet this eligibility criterion for a home loan.
Get a bigger home: In some cases, adding a co-applicant for a home loan significantly enhances the amount of money you can borrow. Hence, allowing you to get a bigger property or buying in a more upscale locale.
Shared responsibility: When you add a home loan co-applicant, you are sharing the responsibility for paying back the home loan. This helps foster a shared sense of ownership and reduces the economic burden on just one member of the family.
Tax benefits: As your co-applicant and you are responsible in repaying the home loan, you will also be eligible for income tax rebate up to Rs. 1.5 lakh each on repayment of principal amount of home loan under Section 80C and up to Rs. 2 lakh each under Section 24 of the Income Tax regulations. It's important to note that the tax benefit of both the deduction on home loan interest and principal repayment can only be claimed once the construction of the property is complete.
Transfer of ownership: Apart from the above benefits, joint property ownership leading to a joint home loan eases the process of transferring ownership in favour of the other applicant (who is a co-owner too) in any unforeseen event.
Things to keep in mind while applying for a joint home loan
All co-owners should be co-applicants in the home loan while not all co-applicants need to be co-owners. Moreover, for a smooth transaction, ensure that your co-applicant has a good credit score, as default in payment by one applicant may adversely affect the credit score of all the applicants. In case of a dispute which leads to default on home loan, the lending institution can proceed with recovery process against all borrowers. It is also advisable for the co-applicant to have a separate life insurance to reduce the financial burden in case of demise of any applicant.
Home loan eligibility for joint applicants is significantly higher than if you were to try to get a loan by yourself in most cases. The ability to club income helps you get a larger loan amount as your repayment capacity is significantly higher. Adding a co-applicant, with regular income, allows you to go for a bigger home as the eligibility goes up.
— The writer is Business Head and General Manager at PNB Housing Finance Limited.
