Applying for a home loan jointly may have certain advantages for both the applicants
Times Property | 10th September 2023
Buying a home is a long-term financial proposition. For buying a home one may require a big amount of fund for which one may approach the financial institutions. One may apply jointly for a home loan. There may be a co-applicant or a co-borrower. Elaborating further, Sadhav Mishra, partner, SNG & Partners, Advocates & Solicitors, says, “A co-applicant also known as co-borrower or joint applicant is someone who applies for a loan, or other financial product along wide the primary applicant. Co-applicants share responsibility for repaying the debt and their credit profiles are typically considered in the approval process.”
Kaushik Mehta, founder & CEO of Ruloans Distribution Pvt Ltd, says, “Securing a home loan often involves the choice of including a co-applicant, a decision that can significantly impact your home-buying journey.”
Talking about the eligibility for co-applicants, Mehta maintains, “In general, a co-applicant for a home loan can typically be a close family member or a blood relative. The most common and ideal co-applicant combinations include Husband-Wife, Father, Son-Mother, or two brothers.”
Following are the advantages and disadvantages of having a co-applicant.
Enhanced Approval Prospects: “Co-applicants, often referred to as co-borrowers or joint applicants, can substantially improve the likelihood of obtaining approval for various financial products such as loans, credit cards and mortgages. Lenders take into account the combined financial strength of both applicants potentially granting access to more favourable terms and lower interests,” Mishra adds.
Increased borrowing capacity: Co-applicants especially those with robust credit histories and higher incomes can unlock the ability to secure larger loan amounts. This proves particularly beneficial where the loan amount is high towards purchase of expensive properties like a home or vehicle.
Favourable Interest Rates: Collaborating with the co-applicant boasting a strong credit score can lead to more competitive interest rates. Consequently, this can translate into lower monthly payments and reduced overall borrowing costs.
Shared Financial Responsibilities: Co-applicants share the onus of repaying the debt. This shared responsibility can help distribute the financial burden equitably and ensure that payments are made punctually.
Credit Improvement Opportunity: In cases where one co-applicant has a less-than-stellar credit history, joining an account as a co-applicant, when managed responsibly, can aid in gradually enhancing their creditworthiness over time. Tax Benefits: Both applicants can proportionately share tax benefits related to home loan interest payments and more. This arrangement translates into tax savings for both co-applicants.
Faster Loan Approval: Lenders often expedite loan approvals for co-applicants due to reduced risk. Multiple borrowers provide lenders with added assurance, reducing the risk of loan default. Government Subsidies and Discounts: “Having a female co-applicant can also make you eligible for stamp duty discounts in certain regions and states. Furthermore, in government housing schemes like PMAY, having a female co-owner of the property can offer advantages when claiming subsidies,” says Mehta.
Joint Liability: The liability of a Co-applicant is joint and severe visà-vis the debt. For instance, if the borrower defaults in making the payment, then both borrower and Co-applicant may suffer negative consequences leading to impacting their credit score and in turn financial stability.
Financial Risk: In case the credit score and/or financial condition of the Co-applicant deteriorate, it can lead to financial strain for both the applicant and Co-applicant.
Shared credit profile: The performance or financial behaviour of both the applicant and/or co-applicant can impact the credit profiles of both applicant and co-applicant. Late payments or default by the applicant can lead to impact on the credit score of the co-applicant.
Limited Autonomy: Co-applicants share equal control over the management of the account which seldom can lead to disagreements over key decisions related to the loan.
Complex Decision: Making on Property Ownership: Co-ownership may result in disagreements over property-related decisions, such as maintenance, renovations, or selling. Some banks may require a co-applicant to be a property owner if there are risks associated with any of the co-applicant’s profiles. Co-ownership can also limit privacy and individual control over the property.
Strain on Relationships: Mixing finances can strain personal relationships, especially if financial difficulties or disputes arise between co-applicants.
Difficulty in Removing a Co-Applicant: Removing a co-applicant from the loan often necessitates lender approval and can be a complex process.
Shared Tax Implications: While tax benefits exist, co-applicants may also share tax responsibilities, which can impact individual tax situations.
Dependency on Co-Applicant: Heavy reliance on a co-applicant’s income can lead to dependency, particularly if their financial situation undergoes changes.
“Thus, the decision to include a co-applicant for a home loan presents clear advantages in terms of eligibility, financial strength, and shared responsibilities. However, it is vital to carefully consider these benefits in relation to potential disadvantages, such as shared liability and the potential for more intricate decision-making. By considering these factors, you can make a well-informed decision as you embark on your journey to becoming a homeowner,” adds Mehta.
To sum up, the presence of a co-applicant can offer numerous advantages, including improved approval prospects and favourable terms.
“However, it also involves shared financial obligations and potential risks that require careful consideration. Prior to entering into a co-applicant arrangement, it is essential for both parties to engage in comprehensive discussions regarding expectations, responsibilities, and financial strategies to prevent any future complications,” concludes Mishra.