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Are you dreaming of owning your perfect home but worrying about finances? Adding a co-applicant to your home loan might be the game-changing strategy you need. This simple yet powerful move can get you higher loan eligibility, lower interest rates, and enhanced tax benefits. It can make your path to homeownership smoother and more affordable.
But that’s not all, there’s more to this partnership than just financial perks. Read on as we learn the top 5 reasons why including a co-borrower could be your smartest decision in securing the home loan you need.
Double your tax benefits by adding a co- applicant on your home loan!
Reason-1 Increased Loan Eligibility
Choose a co-applicant with a steady income and a strong credit history to enhance your loan eligibility. For instance, if you earn ₹50,000 per month and qualify for a ₹30 lakh loan, adding a co-borrower earning ₹30,000 per month might increase your eligibility to ₹40 lakh.
Suppose you’re eyeing a property priced at ₹50 lakh, but your current eligibility is ₹30 lakh. By adding a co-borrower, you can boost your eligibility to cover the entire cost or get closer to it, allowing you to purchase a more suitable home.
Reason-2 Lower Interest Rates
Select a co-applicant with a high credit score to negotiate a lower interest rate. In India, lenders often offer better rates to applicants with higher credit scores. If your credit score is 700 and your co-borrower score is 750, you might qualify for a lower interest rate.
If your current interest rate is 8.5% and your co-borrower strong credit profile helps you secure a rate of 8%, you could save thousands over the life of your loan. This reduction can make a substantial difference in your overall financial commitment.
Reason-3 Higher Tax Benefits
Leverage tax benefits by splitting mortgage interest deductions between you and your co-applicant. Under Indian tax laws, both you and your co-applicant can claim deductions on home loan interest under Section 24(b) and principal repayment under Section 80C.
If you pay ₹1.5 lakh in annual interest, both you and your co-applicant can each claim up to ₹1.5 lakh, potentially doubling your tax savings compared to a single applicant scenario.
Reason-4 Shared Financial Burden
Share the financial responsibility of monthly EMIs with your co-applicant to ease your financial load. Combining incomes can make your EMIs more manageable and reduce the strain on each individual’s finances.
If your EMI is ₹25,000 per month, sharing this amount with a co-borrower can reduce the burden to ₹12,500 each. This shared responsibility ensures timely payments and helps manage cash flow better.
Reason-5 Improved Credit Profile
Maintain a good credit profile by ensuring both you and your co-applicant make timely payments. Regular, on-time payments will positively impact both of your credit scores. This will help in making future financial transactions smoother.
Consistent on-time payments could improve your credit score from 700 to 740. This could help you secure better terms on future loans or credit facilities, potentially lowering your cost of borrowing.
What is a Co-applicant?
A co-applicant is an individual who applies for a home loan alongside the primary borrower. This person shares responsibility for repaying the loan and their income, credit history, and financial stability are considered in the loan application process.
In India, a co-applicant can be a spouse, parent, or sibling, and their involvement can enhance the loan’s approval chances, increase eligibility, and potentially secure better loan terms. Both applicants are equally responsible for the loan, and their credit profiles jointly affect the loan conditions and repayment obligations.
If you’re applying for a ₹40 lakh home loan and your co-borrower has a higher income and better credit, you may qualify for a higher loan amount and better terms.
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Who can become a co-applicant?
Eligibility Criteria
- Age: The co-applicant must be between 18 and 65 years old. For example, if you’re 30 and your spouse is 28, they can be since they meet the age requirement.
- Spouses: Couples are ideal co-applicants. By applying together, you combine your incomes, which can boost your loan eligibility. For instance, if your combined income is ₹1.5 lakh per month, you might qualify for a higher loan amount than if you applied alone.
- Parents and Children: A father and son or a daughter with one or both parents can apply together. This arrangement can strengthen the application. For example, if your father has a steady income and good credit, his involvement can help secure a larger loan for purchasing a home.
- Siblings: Brothers or sisters who live together can apply jointly. If you and your brother are both employed and plan to live in the new home, you can apply together to improve your loan approval chances. Note that a brother cannot include a sister if he is the primary applicant.
Responsibilities
- Repayment: Both co-applicants are equally responsible for repaying the loan. If one person fails to make payments, the other must cover them. For example, if you miss a payment due to financial issues, your co-borrower must ensure the payment is made to avoid default.
- Credit Impact: The loan affects both applicants’ credit scores. Consistent, on-time payments will positively impact both of your credit scores. Conversely, missed payments can harm both your credit profiles. For instance, if you and your co-applicant maintain timely payments, your credit scores may improve, making future loans easier to obtain.
Conclusion
Adding a co-borrower to your home loan can provide several key benefits, including increased loan eligibility, lower interest rates, and higher tax benefits. To make the most of these advantages:
- Choose a Co-Applicant Wisely: Select someone with a stable income and a strong credit score. For example, if your spouse has a higher credit score, their involvement can help secure a lower interest rate.
- Understand Shared Responsibilities: Both you and your co-borrower are equally responsible for repaying the loan. Ensure that you both agree on how payments will be managed to avoid any financial strain.
- Leverage Combined Income: Use the combined income to apply for a larger loan amount or better terms. For instance, if your total household income is ₹1.5 lakh per month, you might qualify for a higher loan amount than if you applied alone.
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Frequently Asked Questions
A co-applicant is an individual who applies with the primary borrower and shares responsibility for repaying the home loan, including their income and credit history in the application.
Yes, both the primary borrower and co-applicant can claim tax deductions on home loan interest under Section 24(b) and principal repayment under Section 80C.
A guarantor promises to repay the loan if the primary borrower defaults but isn’t involved in the loan application. A co-applicant shares loan responsibility and affects approval terms.
Eligible co-applicants include spouses, parents, siblings, or anyone with a stable income and good credit, usually within the age range of 18 to 65 years.
To remove a co-applicant, apply for a loan transfer or re-structure with the lender, ensuring that you meet all repayment obligations and obtain their consent.
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