Before You Co-Apply For A Home Loan, Check These 5 Essentials

When an applicant falls short of the eligibility criteria for a home loan, applying with a partner can improve the chances of loan approval. However, there are different ways to add a partner to the home loan application.

If you are considering adding a co-applicant, it’s important to carefully weigh the pros and cons before deciding. Let’s explore who can be a co-applicant in your home loan and other key factors to consider.

1. Who Counts As A Close Relative When Adding A Home Loan Co-Applicant?

Banks usually allow a brother to be a co-applicant on the loan along with another brother, provided both their addresses are the same. On the other hand, taking a spouse as a co-applicant is highly popular, and banks usually don’t object to it. In fact, by doing so, both the husband and the wife can enjoy tax benefits allowed under the home loan separately.

Similarly, a son and his father are allowed to act as co-applicants, subject to specific terms and conditions by the lenders. However, banks usually don’t allow a married daughter to add her father and mother as a home loan co-applicant. Banks often restrict a brother from co-applying for a home loan with his sister, or when two sisters want to co-apply.

2. Who Else Can Be A Co-Applicant?

An individual who is not an eligible relative to the primary applicant can only co-apply for a home loan if he/she is the co-owner of the property. Meaning, you can co-apply for a home loan with a friend or a distant relative only when both own the property. Also, you’re likely to be faced with several sterner eligibility requirements laid out by the bank to seal the deal.

3. How A Co-Applicant Boosts Your Eligibility

If the co-borrower in a home loan is also the co-owner of the property, he/she can enjoy the tax deduction benefits allowed against the home loan under the applicable act.

If you are looking to apply for a loan value higher than what you are individually eligible for, including a co-applicant can significantly enhance your borrowing capacity and you can get a loan of a higher value for a longer tenure at a lower interest rate.

Another major advantage of co-applying is that the higher credit score of the co-applicant can offset the lower credit score of the primary applicant and help in getting the loan approved at better repayment terms compared to what the latter would’ve gotten had he/she applied alone.

4. Risks Of Co-Applying

The co-applicant is equally responsible for the payment of loan EMIs as the primary borrower. If there is a payment default due to the co-borrower, the credit scores of both the borrowers will get negatively impacted. Worse, a borrower's failure to make payments for a few months will trigger an auction of the property, which threatens to destroy the financial stability of the co-borrower.

Another point to ponder upon is that if a married couple jointly applies for a home loan, and they get separated or divorced in the future, the legal dispute over property ownership arising out of it may take a long time to get resolved.

Similarly, the death of a co-borrower may lead to a dispute related to property inheritance or who would be responsible for the repayment of the loan.

5. Other Points To Consider

Sometimes banks insist on including a co-borrower when applying for a home loan to reduce their risk of lending. They want to ensure that if the primary applicant dies during the loan tenure, they can chase the co-borrower to get their funds back.

In such a situation, the applicant can provide a term insurance cover as a support to the bank so that if he/she dies during the loan tenure, the bank can recover its money from the insurance company.

In conclusion, if you want to apply for a home loan as a co-borrower without being the co-owner of the property, you may be adding a big risk to your finances. Hence, you’ll be well-advised to think it through before signing on the dotted line.