When you, along with your spouse or any other family member purchase a property together as co-owners, any home loan taken for this acquisition must be a joint home loan, with all property co-owners becoming co-borrowers.
Many borrowers also voluntarily opt for joint home loans to avail benefits like increased loan eligibility, higher loan amounts and higher tax benefits.
Here are some important factors that one needs to factor in while availing joint home loans.
Enhanced amount
Lenders consider several factors for evaluating the credit risk profile of home loan applicants. Chief among these are their income, credit score, EMI repayment capacity, age, occupation profile, employer’s profile, etc.
Failing to match the criteria set for any of these factors can lead to loan rejection.
In such cases, looping in an earning family member having a good credit profile as a co-applicant would increase the chances of loan approval. As the co-applicant would also become equally responsible for the loan repayment, adding co-applicant(s) reduces the credit risk for the lenders.
Similarly, as the income of the co-applicant(s) are factored in while evaluating the EMI affordability of a joint home loan application, adding a co-applicant can help in availing bigger loan amounts. On the contrary, one should note that if any of the co-applicants have poor credit score, it can adversely impact the chances of loan approval.
Eligibility conditions
Lenders usually have a predetermined list of relationships eligible for availing joint home loans. Most lenders allow spouses or immediate blood relatives like parents and children to become co-applicants in home loans.
Some lenders though may not allow siblings to become co-borrowers fearing future property disputes and other reasons. For instance, while some lenders may still approve joint home loans to brothers in case they happen to be the co-owners of the property, two sisters or a brother-sister pair are usually not allowed to become co-applicants. Unmarried partners are also mostly not allowed to avail joint home loans.
Shared liability
The primary applicant and co-applicant(s) are equally liable for the loan repayment. In case of default in repayment, the lender will proceed against all the borrowers irrespective of their share in the property or their ratio of their repayment contribution.
Unfortunate events like death or disability of a contributing co-applicant may adversely impact the ability to repay the loan. To avoid such situations, primary or key borrowers should opt for home loan insurance plans.
Tax benefits
Availing joint home loans allows borrowers to avail higher tax benefits as all the co-borrowers can independently avail tax benefits available under Section 80C (up to ₹1.5 lakh) and Section 24b (up to ₹2 lakh).
For example, if you add a co-applicant for your home loan, contributing equally to the EMIs, the total amount of deductions available through your home loan will increase to ₹3 lakh and ₹4 lakh under Section 80C and Section 24b, respectively. However, for availing these tax benefits, co-applicant(s) have to be the co-owner of the property.
Moreover, the tax benefits can only be claimed according to the ratio of repayment contribution made by the primary and co-borrowers.
Thus, joint home loan borrowers should ideally factor in their income tax liabilities while deciding their repayment contribution, with those having higher tax liability opting for higher repayment contribution.
(The writer is Head of Home Loans Business, Paisabazaar)