For many prospective homebuyers facing difficulties in getting a home loan because of unaffordable property prices, joint housing loans often come off as a breather. Many double income households also opt for joint home loans to realize their dream of owning a house.
A joint home loan is useful when you’re short of funds for buying your house. It can also be helpful in situations when your credit score is low or when you are falling short of loan eligibility. Joint housing loans are taken between family members, typically between married couples.
However, you must keep certain points in mind before taking a joint home loan.
Choose your co-borrower carefully
Close relatives or family members having a legitimate source of income or co-ownership in the property can be a co-borrower with you in a home loan. For example, spouse, son and father, brothers and unmarried daughters with father/mother are some of the co-borrowing arrangements possible. However, sisters, friends, and distant relatives (non-blood) are not permitted as a co-borrower.
It is necessary to choose your co-borrower cautiously. You must factor in the risk of a dispute with your co-borrower. For example, if your spouse is a co-borrower and, in the future, there is a divorce, there should be an understanding of who becomes liable for the EMIs. Likewise, the dispute may happen with brothers as co-borrowers, parents, etc. The best way to avoid such a situation is to choose your co-borrower prudently.
Check co-borrower’s loan eligibility
Before applying for a home loan with a co-borrower, you must check his/her eligibility for taking the loan. Adhil Shetty, CEO, Bankbazaar.com, says, “The co-borrower can improve your loan eligibility. But if the co-borrower has a bad credit profile, you may be better off going without them. When choosing the co-borrower, check their income, credit score, repayment capacity, and level of commitment to become part of your home loan journey.”
Take loan insurance cover
One of the reasons for taking a home loan with a co-borrower is to reduce the EMI load, but what will you do if the co-borrower is no more or unable to pay due to a financial or health emergency? Also, the entire repayment obligation shifts to the remaining co-borrower/borrowers in case of the early demise of one of the co-borrowers. However, you can avoid such risks by getting all the borrowers’ life insured. A term plan can be a good option for covering the risk of death.
Tax benefits available
If you are a co-borrower and a joint owner of the property, you can avail the various tax benefits on the home loan. Each co-borrower who is also the joint owner of the property can avail of tax deduction benefits up to Rs 2 lakh u/s 24 of the Income Tax Act, against payment of home loan interest during the eligible financial year. Suppose both borrowers have a 50% share in the property, and together you paid an interest of Rs 5 lakh in your home loan, you can get the tax deduction benefit of Rs 2 lakh each. Likewise, each co-owner can avail of the tax deduction benefit of up to Rs 1.5 lakh each u/s 80C of the I-T Act, against repayment of principal amount every year. Each co-borrower can avail tax benefits in the ratio of their property ownership and is subject to the maximum ceiling for the individual as per the tax laws.
Remember these points to enjoy an upper hand while you sign the dotted lines of your joint home loan agreement.
* A joint home loan is helpful if an individual has low credit score or when you are falling short of loan eligibility. It is taken between family members
* Before committing to a financial journey together, factor in the risk of a dispute with your co-borrower
* If you are a co-borrower and a joint owner of the property, you can avail the various income tax benefits on the home loan