Applying for a home loan is a significant financial step for many individuals and families, and the option to co-apply with another person can enhance the chances of securing favourable loan terms. Co-applicants play a crucial role in the home loan process, allowing borrowers to combine their financial strengths to improve their eligibility and access to funds.
What is co-applying?
Co-applying for a home loan involves two or more individuals jointly applying for a mortgage to purchase a property. This arrangement is common among married couples, siblings, or even close friends who wish to invest in real estate together. By combining their incomes and credit profiles, co-applicants can often qualify for larger loan amounts and potentially secure better interest rates.
Benefits of co-applying for a home loan
Increased loan eligibility
One of the primary advantages of having a co-applicant is the potential for increased loan eligibility. Lenders evaluate the combined income and credit scores of both applicants, which can lead to a higher loan amount that either individual could secure alone.
Shared financial responsibility
Co-applicants share the financial burden of the loan, which can ease the pressure on individual borrowers. This shared responsibility can be particularly beneficial in situations where one applicant faces unexpected financial challenges, as the other can help ensure that loan payments are made on time.
Better interest rates and long tenure
Having a co-applicant with a good credit history can also result in better interest rates. Some lenders may be open to extending the tenure of the loan if one of the co-applicants is younger.
Tax benefit
Under Section 80C of the Income Tax Act, the primary and co-applicant in a home loan are eligible for tax benefits. The rules currently allow each borrower to claim a deduction of up to ~1.5 lakh on the principal repayment (Sec 80C), and a further deduction of up to ~2 lakh towards interest paid (Sec 24(b)). These two deductions can significantly reduce the tax liability for both borrowers.
Risks of co-applying for a home loan
“When it comes to risks, you must remember that all co-applicants are jointly liable for the loan repayment. If one co-applicant defaults, the others must cover the shortfall, which can strain finances. Any missed or delayed EMI payment affects the credit score of all co-applicants. This could hinder their ability to secure future loans. Disputes among co-applicants, such as in the case of divorce or family disagreements, can lead to complications in property ownership and loan repayment. While co-applying for a home loan can give financial advantages, it also comes with its own set of risks, said Adhil Shetty, CEO of Bankbazaar.com
First Published: Aug 19 2024 | 3:26 PM IST
