For many individuals seeking to buy a home, navigating the challenges of securing a loan in the face of high property prices can be difficult. Joint housing loans often offer a practical solution. Many dual-income households are opting for joint home loans to help make their dream of homeownership a reality.
A joint home loan can be particularly beneficial when you need additional funds to purchase your home. It’s also a solid option if you’re facing a low credit score or issues meeting loan eligibility requirements. Typically, these loans are taken out by family members, such as married couples. However, before jumping into a joint home loan, there are several important factors to consider.
Select Your Co-borrower with Care
Selecting a co-borrower who is a family member or a close relative with a reliable income can have a considerable impact. Suitable co-borrowers might include your spouse, parents, sons, or siblings, but it’s generally not permitted to involve friends or more distant relatives. It’s crucial to approach this decision thoughtfully.
Entering a financial commitment with someone means you should also consider the potential for conflicts down the line. For example, if you choose your spouse as a co-borrower and later go through a divorce, it’s essential to have clarity on how you’ll handle the loan repayments. Similar considerations apply when borrowing with siblings or parents. To minimize the risk of disputes, take the time to thoughtfully select the right co-borrower.
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Verify Co-borrower’s Loan Eligibility
Before you move forward with a home loan application that includes a co-borrower, it’s essential to assess their eligibility.
Adhil Shetty, CEO of Bankbazaar.com, points out, “A co-borrower can enhance your loan eligibility. However, if they have a poor credit profile, it might be wiser to apply without them. When selecting a co-borrower, make sure to evaluate their income, credit score, repayment capacity, and their willingness to be part of your home loan process.”
Consider Loan Insurance Coverage
While one of the advantages of having a co-borrower is to alleviate the EMI burden, it’s crucial to think about what would happen if the co-borrower were to pass away or face financial challenges due to health issues. In such unfortunate events, the remaining co-borrowers would bear the full repayment responsibility. To mitigate these risks, securing life insurance for all borrowers is a prudent move. A term plan could be an effective choice to cover the risk of untimely death.
Tax Benefits for Co-Borrowers
As a co-borrower and joint owner of the property, you’re in a great position to take advantage of various tax benefits associated with your home loan. Each joint owner can claim tax deductions of up to Rs 2 lakh under Section 24 of the Income Tax Act for the interest paid on the home loan within the eligible financial year.
For instance, if both co-borrowers hold a 50% share in the property and have collectively paid Rs 5 lakh in interest, each can claim a deduction of Rs 2 lakh. In addition to this, each joint owner can also benefit from a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act for the repayment of the principal amount each year. Tax benefits can be claimed in proportion to each co-owner’s share in the property, adhering to the individual limits set by tax laws.
Keep these points in mind to maximize your benefits as you finalize your joint home loan agreement.
