Hemant Jain, an employee with a leading accounting firm, was shopping for home loan to buy a flat in Delhi. However, his loan applications were repeatedly getting rejected on the grounds of insufficient income (generally, the lenders want the monthly loan repayments to remain within 30–40% of borrowers’ net monthly income, and crossing this limit may lead to the rejection of your loan application).
On learning his ordeal, one of his colleagues suggested him to consider a joint home loan for increasing his loan eligibility. Acting on the advice, Hemant made a fresh loan application with his employed spouse as a co-applicant. Their monthly EMI became less than 30% of the combined monthly income and as a result, their fresh loan application got approved.
Applying for a joint loan is one of the most convenient ways of increasing your home loan eligibility. However, there are some other points that you need be aware of before applying for such loans. Let’s take a look at some of them:
Eligibility of a co-borrower: In case of joint home loans, only a few relationships are allowed to become co-borrowers. These loans are only provided to spouses or blood relatives, such as parents and children. Although most banks do not prefer siblings to become co-borrowers fearing future property disputes, some may allow joint home loans to brothers if they happen to be co-owners of the property.
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Typically, sisters are not allowed to avail joint home loans because of the risk of not contributing to the repayment after their marriage. Similarly, brother-sister and unmarried partners are also not eligible for joint home loans. However, an unmarried daughter and her father can jointly apply for a home loan if the property is in the name of the daughter.
Documentation: In case of a joint home loan, all co-applicants are required to go through the same set of KYC documentation. Each of them is required to submit their ID proofs, income proofs and address proofs. If two or more co-applicants are co-owners, then a proof of the co-ownership of their property has to be submitted. Remember that as the banks will check the documents of each co-applicant, the entire documentation process may take more time than a loan taken singly.
Shared liability for repayment: The primary borrower and the other borrowers are equally liable for the repayment of the loan. The ratio of the ownership of their property or their share in property does not matter. In case of a default, the lender will proceed against all the borrowers of the loan. Thus, co-borrower(s) may come under serious pressure in the event of death of a contributing co-applicant. This will especially hurt a co-borrower who is not a co-owner of the property. To avoid such a scenario, get yourself and your co-borrowers adequately covered by a term policy.
Tax benefits: This is another major advantage of availing joint home loans. All co-borrowers of a joint home loan can independently avail tax benefits available under Section 80C (up to Rs 1.5 lakhs) and Section 24 (up to Rs 2 lakhs). This means that if you add a co-applicant to your home loan, contributing equally to the repayments, the total amount of deductions available under Section 80C and Section 24 will increase to Rs 3 lakhs and Rs 4 lakhs, respectively. However, remember that for availing these tax benefits, your co-applicant has to be a co-owner of your property. Moreover, the tax benefits can only be claimed according to the ratio of your and your co-borrower’s repayment contribution.
For example, if the ratio of the repayments made by you and your co-borrower is 60:40, the ratio of your tax benefits will also be in the same ratio. Thus, always set your repayment contribution ratio according to your income tax liabilities. For example, if your tax liability is higher than your spouse’s, your contribution towards repayment should also be on the higher side.
With spiralling home prices, a joint home loan is one of the best ways to improve your home loan eligibility. You can also add a co-applicant if you want to pay-off your loan in a shorter tenure or if you want to bring down your family’s income tax liability. However, make sure to get adequate life cover for each co-applicant in order to deal with unforeseen events.
(The author is CEO & Co-founder of Paisabazaar.com)