Buying any kind of property is a huge decision for the whole life. Nowadays Banks/ NBFC’s ask the borrower to include a co-applicant in the loan. Co-owning property with our own family member is a normal practice for long but nowadays people do not shy away to collaborate with their friends too. However, many of us believe that friends can have transparent communication about the property to be invested in, the future of it, the gains and there are some who think that it can be a risk too where the two plan to become the co-borrowers.
But when there are too many goody-goody relations between two friends and their families then there is always a possibility to become a co-borrower or a co-applicant while buying a property. When two partners want to become business partners or partner in their properties there is always a possibility of not agreeing onto many terms.
It may or may not be quite challenging while borrowing a home loan with a friend but still they share of challenges include the amount that needs to be borrowed, the credit score of the two borrowers, the intentions, the market reputation and also the capacity to repay the equated monthly installment (EMIs). The experts from Mudrahome come up with few tips that will help you make a wise decision before you plan to become a co-borrower in a business or a property with your friend:
The first thing that you two (it can be 2 or a group of friends) need to sit and pen down is the type of loan that you both think is suitable for you. The type of loan can be:
A home loan where you both will be putting the new or old property to be purchased as collateral with a bank.
A loan against property or a mortgage loan where you will be putting your existing properties/ assets with the bank as collateral and then further buying a new property with the amount borrowed from the bank as a loan.
A business loan where you both should have a strong business proposal to get the loan sanctioned. Your mindsets should reflect the same idea in front of the loan officer on which you have applied for the loan. However, a business loan cannot be borrowed to purchase a property.
A personal loan can definitely be an option to top up an additional amount due to a deficit or to furnish the purchased property. In a personal loan, you have to pay a higher percentage of rate of interest as well as being an unsecured loan it will not involve any security.
Whatever the loan is, it includes the mutual consent on the duration of the loan, the EMI that you both have to pay and also the rate of interest available to both of you being a co-borrower. As co-borrowers, it is important to remember that both of you can avail of the benefits of income tax rebate on the principal repayment under Section 80c and also on the interest amount under Section 24 of Income Tax. The minimum or maximum amount that you can claim for income tax deductions will depend on the use of the property. The deductions vary from Self-occupied property to let-out property or rent out the property.
Before moving ahead for applying for a home loan the calculation of EMI plays a crucial role. So before the two of you take this step, you need to find a common ground where you both settle and without any doubt, Mudrahome comes forward to the rescue. All the partners can go to the online portal of Mudrahome i.e. www.mudrahome.com and fill in the basic information to get a clear picture of the EMI’s. There can be a situation where you both are capable and willing to pay a higher EMI for a short period whereas there might a situation arise where anyone of you wants to keep the EMIs small and for a longer period. Therefore, before you move ahead with the home loan borrowing process where the two of you together are going to borrow a loan, it is important to keep in mind about each other’s financial capabilities and the liabilities.
While you plan to move further in the home loan process, you both can also check your credit score on the web portal of Mudra Home. Before proceeding further with your friend, make sure you both are well aware of each other’s credit history. A healthy credit score and a balanced credit history of both the borrowers will make it easy to get the loan, whereas if there is any kind of flaws with anyone of you, it might call for a delay or rejection of the loan application. Moreover, credit history will also help you know the current and past financial standing of your friend who will also be your future co-borrower.
How good friends you maybe but money matters can become area son of conflicts. Before it sours your relationship, it is always good to have an agreement that clearly states the roles and responsibilities of both the investors. You both can also sit together to find the areas of conflict, including what will be the usage of the property, who will look after the maintenance, splitting of the bills and taxes also the property visits on a regular basis. Make sure that you both are clear about the use of the property as well as the time for its use.