Buying your first home requires a lot of financial effort. You need money for down payment before you even apply for a home loan. Typically, when an individual falls short of funds or is unable to meet the lender’s eligibility criteria all alone, one of the options that may come to mind is a joint home loan.
A person can enhance his/her borrowing capacity while taking a home loan jointly. Also, it becomes easy to borrow when a credit score of one person is not enough to get the amount of money a borrower may need. Let’s look at the pros and cons of a joint home loan.
Who Can Apply?
You can jointly borrow a home loan with your family members or immediate relative such as parents, spouse, male child, unmarried female child, or brothers living together. It is not mandatory to be a co-owner in the property. However, for tax benefits, the co-borrower also needs to be the co-owner of the property to become eligible for availing the applicable tax benefits.
Adhil Shetty, CEO, Bankbazaar.com, says, “A joint home loan helps enhance your loan eligibility and fetch income-tax benefits for all co-borrowers. It is necessary to ensure you add a co-applicant basis their income, credit score and repayment capacity to service the loan to the end. You can take a joint loan with your spouse, parents, and child. A few banks may allow brothers to apply for a joint home loan if they are co-owners of the property. However, friends, sisters or unmarried couples living together may face some challenges getting credit.”
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Pros of Taking A Joint Home Loan
By adding a co-applicant in your home loan, you can increase your eligibility to avail more funds from the banks provided both the borrowers meet the basic requirements of the lender. Failing to avail funds from financial institutions could be due to multiple reasons like poor credit score, insufficient income among others. However, a co-applicant can bridge the gaps in your eligibility norms.
Adding a joint home loan borrower with adequate income or a high credit score can improve your chances of getting the home loan approved quickly.
In a joint home loan, if the co-borrower is also the co-owner of the property, then he/she can also become eligible to avail the tax deduction benefits u/s 24 and u/s 80 C within the prescribed limit. Joint loan borrowers can enjoy a tax benefit of Rs 1.5 lakh and Rs 2 lakh each i.e., a total benefit of Rs 7 lakh together as per the Income Tax Act.
Lenders prefer joint owners as it lowers their risk. A few banks offer home loans at a lower interest rate if one of the borrowers in the home loan is a woman, so you can lower the home loan EMI by including a female member of your family as a co-borrower in the loan.
Cons of Taking a Joint Home Loan
All financial products have some pros and cons. Similarly a joint home loan also has some drawbacks. For example, if one co-borrower fails to repay the home loan EMI on time, the credit scores of both the borrowers get impacted.
If there is a dispute between the co-borrowers, it may result in non-payment by one of the borrowers and thus cause repayment default. If the loan has been taken by the spouses together and later in case of divorce, it can result in a legal dispute that may take a long time to resolve.
Often a co-applicant is added to ease the financial pressure of the loan but if he/she fails to service the loan with you after years, then the entire loan amount becomes your responsibility.
Does it make sense to borrow jointly?
Selection of the right co-borrower is important to eliminate the chances of putting the entire loan at risk. To avoid a loan dispute in a joint home loan both the co-borrowers must be aware of applicable terms and conditions. If you are going to become a co-borrower in a home loan without being one of the owners of the property, then make sure you know the repercussions if the co-borrower who is also the owner defaults in repaying the loan. You must make all the calculations before entering into a loan agreement with the lender.