Thinking Of A Joint Home Loan? Read This Before You Apply

Buying a home is one of the largest financial decisions that most people make in their lifetime and not everyone can qualify for a loan amount they want individually. In such cases, having a joint home loan can come to rescue where two or more applicants apply jointly for a loan. 

The joint applicants combine their source of income and credit profile, thereby making it easier to qualify for the loan. It also helps you own your dream home along with receiving some tax benefits. With added benefits like shared repayment responsibility, it’s important to know the risks involved with joint borrowers before applying for the loan together.

Advantages and disadvantages of a joint home loan:

Who Can Apply For A Joint Home Loan?

You can take a home loan jointly with your family members or immediate relative like parents, spouse, male child, unmarried female child, and brothers living together. You or your co-applicant doesn’t need to be a co-owner in the property. But if you want your co-borrower to be eligible for tax benefits, he/she needs to be a co-owner of the property.

“A joint home loan helps you get a higher loan amount and also provides tax benefits to all co-borrowers. One needs to ensure that they add a co-applicant on the parameters of income, credit score, and repayment capacity to service the loan till the end. One can apply for a joint loan with parents, spouse or children. Some banks also allow brothers to apply for a joint home loan if they own the property jointly. However, friends, sister or couples (married or unmarried) living together might face difficulty in getting sanctioned,” says Adhil Shetty, CEO, Bankbazaar.com.

Advantages of Taking A Joint Home Loan

With a co-applicant added to your home loan, you can borrow more as your loan eligibility increases when both the borrowers are considered together. Lenders might have rejected financing your property solo because of multiple reasons such as low income or poor credit score. However, with a joint applicant you can fulfill your loan eligibility criteria.

If your co-applicant has a good income or a good credit score, your loan approval process will be faster.

You can claim tax benefits if your co-applicant is a co-owner of the property. Since both co-borrowers are owners of the property, they can claim a tax deduction under Section 24 and Section 80C individually within the set limit. Co-owners can get a tax benefit of Rs 1.5 lakh each and if your co-owner is a parent, they can avail a tax benefit of Rs 2 lakh each under the old tax regime. Hence you can avail a total tax benefit of Rs 7 lakh as per the Income Tax Act.

Also, since the loan is distributed between the two borrowers, lenders view this as lower risk and may provide you with more benefits. For example, some lenders provide lower interest rates if any one of the borrowers applying for home loan is female. Including your wife or daughter as a co-borrower can reduce your EMI amount.

Disadvantages of Applying for a Joint Home Loan

Every coin has two sides. Similarly, there are certain disadvantages to a joint home loan too. For instance, if one borrower is not able to make the EMI payments on time, it affects the credit score of both the borrowers.

Joint home loans can become problematic if both the borrowers don’t agree to the loan terms, resulting in non-payment of EMI by one of the borrowers. Joint home loans taken by spouses can lead to lengthy legal proceedings in case of separation.

Also, joint borrowers are responsible for repaying the home loan. So, if your co-applicant is added to share the financial burden of your loan, years down the line if he fails to repay, you’ll be left to clear the entire loan amount.

Should You Get A Joint Home Loan?

Carefully choose your co-borrower. You should be in agreement with the other borrower about the loan amount to reduce the chances of loan defaults. Joint borrowers should be aware of the terms and conditions that apply while applying for a joint loan. Also, if you are paying the home loan EMIs but aren’t one of the owners of the property, understand the consequences if your co-owner fails to repay the loan. You should crunch all numbers before applying for a loan.

Can A Loan Be Co-owned By Friends?

Friends can co-own a home loan if they fulfil all the conditions necessary to apply for a home loan. They should also be ready to face the consequences if any one of them is not able to repay the loan.