Co-Applicant In Home Loans

A co-applicant, or co-borrower, is essential to house loan applications. When applying for a home loan, a co-applicant is a second person who uses alongside the principal applicant.

Benefits of Having a Home Loan Co-Applicant

Here are some of the benefits of having a home loan co-applicant:

More Borrowing Power

Adding a co-applicant to your loan allows you to borrow a higher amount of money. This is because the lender looks at the combined incomes of all the co-applicants when deciding how much to lend.

Better Interest Rates

Co-applicants with good credit scores and steady incomes can help you get a lower interest rate on your loan. This happens for two reasons:

It reduces the risk for the lender since multiple people are responsible for repaying the loan which makes it less likely that they won't get their money back.
It gives you more bargaining power to negotiate a lower interest rate with the lender.

Tax Benefits

If you add your spouse, children, or parents as co-applicants and co-owners of the property, you can all claim separate tax deductions on the home loan. Each co-applicant can claim deductions on the principal amount repaid (up to Rs. 1.5 lakhs) and on the interest paid (up to Rs. 2 lakhs).

Tax benefits of having a joint home loan

If you have a joint home loan with another person, you can both save on taxes. The government allows you to reduce your taxable income by up to Rs. 1.5 lakh each under Section 80C of the Income Tax Act. This means that the amount you pay as principal repayment for your joint home loan can be claimed as a deduction by both borrowers separately, up to Rs. 1.5 lakh each. However, this deduction also includes other investments you may have made like life insurance premiums or PPF contributions. So, the total of all your eligible investments, including home loan principal repayment, cannot exceed Rs. 1.5 lakh for each borrower. But you can only claim this tax benefit if the property is fully constructed and used for self-occupation, not renting out. Under-construction properties don't qualify for this deduction.

Also read - Steps to get home loans

Some Key Points Regarding The Role Of A Co-Applicant In Home Loan Applications

1. Shared Ownership

Including a co-applicant allows for shared property ownership. The primary applicant and the co-applicant have equal property rights and obligations. It benefits married couples or individuals who want to transfer property ownership and financial burdens.

2. Improved Eligibility

A co-applicant with a stable income and an excellent credit history can improve loan eligibility. Combining the income and creditworthiness of both applicants strengthens the loan application, making it more likely to meet the lender's requirements.

3. Higher Loan Amount

With a co-applicant, the total income considered for loan approval increases, which can lead to a higher loan amount. Therefore, it can be advantageous when purchasing a property that exceeds the affordability of a single applicant.

4. Improved Repayment Capacity

When both applicants' income is considered, it enhances the repayment capacity of the loan. This factor reassures the lender about the applicant's ability to repay the loan on time, thus increasing the chances of approval.

5. Shared Financial Responsibility

As co-applicants are jointly liable for the loan, both parties share the financial responsibility. It means that both individuals are responsible for the timely repayment of the loan, and any default or delay in payments can affect the credit scores of both applicants.

6. Co- applicant's Credit History

The lender also evaluates the credit history and score of the co-applicant. A good credit score of the co-applicant can positively influence the loan terms, including interest rates, as it demonstrates a lower credit risk for the lender.

7. Co- applicant's Documentation

Depending on the lender's requirements, a co-applicant must provide the required documentation, such as identity proof, income proof, bank statements, and property documents. These documents are necessary to assess the co-applicants financial stability and eligibility for the loan.

Read more about: How a Joint Application for Home Loan can be beneficial?

The Final Word

It's important to note that while co-applicants can offer several advantages, they share equal responsibility for the loan. Therefore, both applicants should carefully consider their financial capabilities and assess their ability to meet the loan obligations before proceeding as co-applicants for a home loan.

Frequently Asked Questions

1. Can anyone be a co-applicant?

Ans: Generally, anyone can be a co-applicant if they meet the criteria set by the lender or the financial institution offering the product. However, some institutions may have specific requirements, such as being a family member or a spouse, to qualify as a co-applicant.

2. Can a co-applicant be removed from a loan or credit card?

Ans: In most cases, removing a co-applicant from a loan or credit card is not as simple as removing an authorized user. It typically requires refinancing the loan or applying for a new credit card only in the primary applicant's name. The process and requirements for removing a co-applicant can vary depending on the lender or financial institution.

3. What is the purpose of having a co-applicant on a home loan?

Ans: Having a co-applicant helps you qualify for a larger home loan amount by combining your income and credit scores.

4. Can anyone be a co-applicant for a home loan?

Ans: No, co-applicants usually need to be close family members or have an ownership stake in the property you're buying.

5. Does a co-applicant need to have a certain income or credit score?

Ans: Yes, co-applicants generally need to meet the lender's minimum income requirements and have a good credit score.

6. What happens if one co-applicant has a poor credit history?

Ans: If one co-applicant has poor credit, it can negatively impact the loan approval and terms, despite the other co-applicant having good credit.

7. Can a co-applicant be removed from a home loan later?

Ans: It's difficult to remove a co-applicant from an existing home loan. You may need to refinance or restructure the loan completely.

A Co-applicant's Role In Home Loan Applications

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