Benefits of Co-Applicant for Home Loans

Hey there, dreamers! Ever find yourself gazing at that perfect home, imagining it as yours? Well, you’re not alone. For many Indians, owning a home is like grabbing a slice of security and contentment.But hey, let’s face it, turning that dream into reality takes more than just wishful thinking. You need the green stuff – money! And if you’re scratching your head wondering how to fund your home sweet home, sit tight. We’re diving into the idea of bringing a co-applicant on board for your home loan application.
Stick around, and we’ll spill the beans!

What is a co-applicant in a home loan?

A co-applicant is someone who applies for the loan along with the primary borrower and shares the burden of EMI and other responsibilities.

Do you even need a co-applicant for Home Loan?

Just because you can add a co-applicant doesn’t necessarily mean you should. If you meet these criteria, there’s no need for a co-applicant.

• You meet all the requirements for the loan as an individual applicant.
• Depends on the relationship with the individual. Because if they fail to pay their portion of the EMI, it’ll have an impact on both of your credit scores.
• Your interest & principal are within Section 80C and Section 24B limits and you’re fully utilizing them.

Why is a co-applicant important?

Adding a co-applicant to your home loan can significantly increase your chances of approval and offer several other benefits. You can add close to 7 co-applicants which will greatly reduce your home loan burden.

Just because you can, doesn’t mean you should add so many. Because multiple factors such as relationships, repayments, etc are at play here. More on this later, for now, here are all the benefits of having a co-applicant.

1) Higher Loan Eligibility

The income of one individual may not be enough to secure a loan for a property of your choice. This is why a co-applicant will be helpful. Banks will consider the income levels of both parties, and you could secure up to 90% of the property value as a loan.

2) Better Loan Terms

If your co-applicant has a strong credit profile and good income, you will receive favorable interest rates and loan tenures. Low-interest rates will help in the case of a long-term loan. This is because your outflow towards interest will be lower in comparison to that of a short-tenure loan.

3) Shared Financial Responsibility

The proportion of the EMI (Equated Monthly Installment) can be decided by the applicants. Since there are at least 2 people to pay back the EMI, the burden doesn’t fall on a single person. This helps with better management of funds for other financial goals.

4) Tax Benefits

The principal component of the home loan is eligible for a deduction under Section 80C, whereas the interest component can be deducted under Section 24B. And yes, both the co-applicants can claim tax benefits under these sections.

Do note these two important pointers:

• Co-applicants can claim tax benefits in the proportion of their EMI payments only.
• Co-applicants must also be co-owners to be eligible for the deduction.

5) Improved Credit Score

As long as there are no defaults, your credit score will be positively impacted by the repayment of the loan over time. Another important factor is that your debt-to-income ratio will reduce due to the combined higher income.

Home Loan Co-Applicant Tax Benefits

As a co-applicant, you can also claim deductions as per the IT Act. But, you will also need to be a co-owner to be eligible to claim deductions.

The tax benefits will majorly be helpful because now 2 of them can claim it. Hence, it’s double the benefits. But again the maximum amount of deduction you can claim will depend on your principal and interest component and how huge they are.

Therefore this is more beneficial in the case of a bigger and costlier home. Under Section 80C, each person can claim up to Rs 1.5 Lakhs as a deduction on the principal component. Similarly, under Section 24B, each of them can claim up to Rs 2 Lakhs as a deduction on the interest component.

Let’s understand better with an example: Mr. A and Mrs. A take a joint home loan. They agree to split the EMI equally. Let’s assume that for this year, they pay Rs 1.5 Lakh of the principal amount back, and Rs 3 Lakhs of the interest.

In this case, Mr. A can claim Rs 75K under 80C, and Rs 1.5 Lakhs under Section 24B. And Mrs. A can also claim the same.

But let’s assume Mr. A took the loan alone with no co-applicant, he could’ve claimed only Rs 2 Lakhs under Section 24B. But together, they claimed the entire Rs 3 Lakhs as a deduction.

Who Can Be a Co-Applicant for Home Loans? Co-Applicant Eligibility Criteria for Home Loans:

There are certain combinations of relationships that qualify to be a co-applicant. These members’ income is considered when determining their eligibility for a home loan when they co-apply.

These members are not acquaintances and distant relatives; rather, they are relatives connected by blood or marriage. They are as follows:

Spouses

This is the most preferable and acceptable combination. They will be co-owners and equally bear the loan burden.

Father and Son/s

A father and son can co-apply for loans together. If the father has only one son, then the father can be the primary borrower. But in the case of more than one son, the son co-applying would be the primary borrower. This is to avoid inheritance issues.

Parent and Unmarried Daughter

In this scenario, the daughter would have to be the sole owner of the property. This is to avoid disputes when the daughter gets married. Parent’s income will not be considered while co-applying as well.

Brother and Brother

In this case, brothers need to be residing at the same address. They will also be required to be co-owners.

Here are certain unacceptable combinations of co-applicants:

• Two Sisters
• Brother and Sister
• Parent and Married Daughter
• Couples In A Live-In Relationship
• Friends
• Cousins

Is a co-applicant also the co-owner?

All co-owners are technically co-applicants. But not all co-applicants need to be co-owners. Co-applicants share the responsibility of paying back the loan but don’t necessarily need to have ownership of the property.

Conclusion

Should you even have a co-applicant? There are multiple benefits to having a co-applicant on your home loan. But, at the same time, the relationship with the co-applicant matters a lot. This can make or break your finances.

Make sure you and the co-applicant are on the same page. Plan for a home loan that you can repay based on your combined income levels, leverage the joint tax benefits, and most importantly pay your EMIs on time.

Still confused about your next step? Worry not, we got you. Contact our team of Credit Dharma Experts and get personalized advice tailored just for you.

Frequently Asked Questions