Why do You Need a Co-Applicant in a Home Loan?

Understanding your ownership pattern is essential. Here is everything you need to know about the co-applicant in a home loan.

Engaging yourself to take home loans includes a great deal of money and the risk-bearing capacity to cover the loan in the given repayment time. In India, purchasing your dream house can cost a fortune, so when it comes to home loans, people try to have a co-applicant in home loan.

A combined mortgage enables two or more family members to borrow money for a home with shared repayment duties. Most consumers choose such a loan to increase their eligibility for a house loan or lower the interest rate. For properties shared by two or more family members, lenders ask applicants to compel co-owners to sign on as co-borrowers.

We encounter several terms when discussing a house loan, such as joint owner, co-owner, co-applicant, co-borrower, etc. The unfamiliar may find these terms intimidating. However, it pays to learn more about these in depth before purchasing that ideal home or property so that you will get prepared. Let's examine the dynamics of co-applicant.

What is a co-applicant?

A co-applicant is a secondary applicant to the principal applicant, and he underwrites the loan and gets approval along with the loan bearer or the primary applicant. A co-applicant in a home loan is different from a co-signer or guarantor when it comes to loan agreements.

A co-signer may help the original applicant get better loan terms. However, they are rarely given access to the money or made a part of the collateral. As a result, a co-signer serves as the borrower's fallback payment source.

When you apply with a co-applicant, the chances of getting a home loan are improved. The bank or financial institution can have more confidence in your ability to repay the loan when you apply with a co-applicant. As a result, your home loan will have a higher loan amount and more flexibility.

Additionally, co-applicants might be quite beneficial in today's world, where housing costs are rising.

Who can be a co-applicant?

Banks have set standards regarding the eligibility requirements for co-applicants for home loans. Family members can co-apply for a home loan along with you. While such family members co-apply for a home loan, their income is considered when determining your eligibility for a home loan.

Family members often relate to those connected by blood or marriage, not too distant relatives and friends.

Here are a few examples of co-applicants in home loan:

Father and son

If the applicant is the only son, both applicants' accumulated incomes will be taken into account, and they must jointly own the property. The father is only permitted to participate as a co-applicant, not as the primary borrower.

Husband and wife

A husband may co-apply for a home loan with his spouse. If his wife is a wage earner, their combined income is considered, and they are eligible for several tax breaks.

Unmarried daughter and father

Daughters who are not married are eligible to co-apply for a home loan with their father. However, the father's salary is not considered to avoid future legal issues.

Brothers and sisters

If the main applicant's brother lives with the owner of the new home, he may apply as a co-applicant for a home loan. However, a brother serving as the principal applicant is not permitted to select his sister as a co-applicant in home loan. A female candidate cannot choose her sister as a co-applicant, either.

A minor is not eligible to be a co-applicant in a home loan.

Benefits of being a co-applicant in home loan

Adding co-applicants with independent income sources is one approach to boost your home loan eligibility. Your eligibility for a larger home loan will increase because the lender will consider their income when determining your ability to repay.

Increases loan eligibility

When examining house loan applications, lenders consider many variables, with income, credit score, credit profile, and affordability of equated monthly instalments (EMI) ranking highly. In these situations, adding a family member who is employed and has a solid credit score as a co-applicant can improve loan eligibility.

Loan acceptance is more likely when both co-applicants have solid credit and steady income.

Higher tax benefits

Income tax deductions are available for house loan repayment. Under Section 24B of the Income Tax Act, the repayment of interest component up to a maximum of 2 lakh for a self-occupied property is eligible for a tax deduction.

The repayment of the main component is also eligible for a tax deduction under Section 80C up to a maximum of 1.5 lakh per financial year.

According to their respective contributions to loan repayment, the primary applicant and co-applicants may each independently take advantage of these tax advantages.

Including a co-applicant in home loan can result in more significant overall tax advantages. However, co-applicants can only take advantage of these tax advantages relating to house loans if they jointly own the relevant property. The co-applicants, the property's co-owners, take advantage of combined tax advantages.

Avail lower interest rate for female co-applicants

Many mortgage lenders reduce the interest rates on house loans for female co-applicants. Many banks and non-banking financial institutions (NBFCs) provide their lowest home loan rates to female customers, according to Adhil Shetty, CEO of BankBazaar.com.

Women typically take out larger house loans than males, as we have observed year after year. Women are stepping forward to apply for loans taken out by their spouses as co-applicants and as the primary borrowers of these mortgages.

Lower rates make it simpler for families to pay off their debts more quickly.

The flexibility of repayment

The primary applicant and the co-applicant are equally responsible for loan repayment when they take out a joint house loan. However, they are free to divide the EMI repayment load.

Legal rights and liabilities of a co-applicant

A co-applicant is a co-signer in the home loan. If a partner defaults, dies or otherwise declines to engage in the partnership, the co-applicant in home loan shall be fully liable for the loan.

When a borrower does not make the repayment, a co-applicant is equally responsible. Even if the primary borrower has insurance coverage, the co-applicant will still be liable for the loan repayment in the event of the primary borrower's passing.

Many banks and financial institutions require a co-applicant, but this is more of a necessity than a requirement, and co-applicants are not required by law to be present.

Is it a good decision to be a co-applicant in a home loan?

Being a co-applicant in home loan proceedings helps you in every possible manner. It is an excellent decision to be a co-applicant in a home loan as it will provide you with tax benefits, which will help you personally. It increases the home loan eligibility and makes the liability of payment of EMIs easier.

Many lenders will lower the interest rate when women co-apply for a mortgage. These rates may be as much as 0.05% (5 basis points) less than the typical interest rates provided by most lenders.

Women can either be the solo or joint owners of the home or property to qualify for interest rate discounts. It affects women who are primary or co-applicants for a mortgage. When determining a co-eligibility applicant for a house loan and her ability to repay it, most banks and lenders also consider the applicant's co-income.

Conclusion

For many of us, buying a home is a once-in-a-lifetime investment. It is only natural to want to make it as big and good as possible. The size, location, and standard of our home are determined by affordability.

Without a doubt, being able to obtain a home loan has improved affordability. However, factors such as your age, income, other loans that you still owe, etc., will determine your eligibility for a home loan.

According to responsible lending guidelines, the total of your house loan EMI and any other EMIs you may be currently servicing cannot be more than a set percentage of your take-home pay.

Giving a cruck about the aforestated article, a co-applicant in a home loan proceeding is a secondary applicant, and his work is to underwrite a loan. A few relationships are considered when it comes to who can be a co-applicant in home loan, for example, father-son, husband-wife, brother-sister, unmarried daughter and father, etc. A co-applicant gets tax benefits in home loan proceedings.