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A long time dream – an owned house. This dream can easily be fulfilled with the help of a Home Loan. A loan can be applied for various reasons depending on the personal needs of an individual. An applied loan amount may not be sufficient to buy the dream house. The loan amount completely depends on our earnings and our repaying capacity. There can be a situation that our loan eligibility does not match as per the loan tenure or the fund amount is lesser than what we want. As we cannot manipulate our earnings so an individual is left with two options: (Check your home loan eligibility)
Firstly either choose a property which is below your expectations or secondly postpone your decision for the time being.
The first option does not sound too satisfactory as home buying is a big decision and its very much difficult to compromise. Also finding a similar kind of a property is a difficult task even if it is little far from the city. This can be a better option but it’s too time consuming and also there is no assurance of finding the same property. The second option is feasible but it can only work with luck. As you grow professionally and the salary rises, the property rates also rise on a faster pace than your salary.
This is not the end of the road. A third option is also visible and can be advised by the Bank/ NBFC or the mortgage broker. This is to add a co-applicant in your loan.
A co-applicant is a person who applies for the loan along with the borrower. A co-applicant is added to increase the borrower’s loan eligibility by supplementing to the borrower’s income. There are few specified relationships as per the policy of Banks/ NBFC’s/ HFC’s that are allowed to be co-applicants. Though it is not a compulsion or a legal requirement to have a co-applicant. But the co-owner of the property has to be a co-applicant in the loan.
A co-applicant increases the qualifying potential for the larger loan amount. A co-applicant is completely responsible for the loan repayment as the main applicant. The co-applicant will also be responsible for the loan repayment in case of any demise of the primary borrower, even if the loan holds an insurance cover. Many banks/ FI’s insists to have a co-applicant not because it’s a requirement but it’s a necessity. A home loan taken along with a co-applicant is called a joint home loan. A co-owner is a person who have share and rights of the property.
Co-owners can always be a co-borrower but co-borrowers are also co-owners, its not necessary.
By adding a co-applicant the main advantage is that it enhances the eligibility for the loan. In a joint loan, an income of all the co-applicants is considered and the eligibility is determined based on the regular income source of all the applicant and co-applicants. Additional benefits of having a co-applicant in a loan are :
Both primary as well as the co-borrower shares the equal responsibility of the loan. If payments are done on time both the applicant and the co-applicant get the benefit of the favourable credit reporting. Whereas, non payments or the delayed payments negatively impact the credit ratings of both applicants.
Before the loan approval, the underwriter evaluates the financial condition of both the applicant and the co-applicant. An earning co-applicant can strengthen the chances of getting the loan approved. Bigger loan amount to buy a bigger house because of a increased eligibility. An additional income of the co-borrower can always help to qualify for an expensive loan amount. The loan officer with evaluate the co-borrower’s income & expenses as well as the main applicant’s over all income to expense ratio.
A co-borrower with strong credit score can always benefit with a favourable interest rates along with other loan programs as the additional income of the co-applicant gives a confidence to the bank to assess the risk involved in sanctioning a loan.
With a taxation point of view, a joint loan is quite beneficial for both applicants. The tax deductions can be claimed under Section 24 of Income Tax Act for the interest paid and Section 80C against the principal repaid.
Banks have defined the terms for the co-applicants who can be a part of a loan. A co-applicant must be a close relative like blood relatives or a spouse. When it comes to lending, even a very good friends cannot be co-applicants as the bank do not recognize such relationships while sanctioning o a loan. Though spouse is a most common & preferred co-applicant by the banks. Other than spouse a co-applicant can be any one of the following: father or mother; brothers; sisters with certain terms and conditions. In case of company loans, co-applicants can be the co-owners of the company too. Minors are not considered to be a co-applicant by any of the Banks/ NBFC’s.
No friends or other relatives are allowed to be co-applicants though they can be a guarantor, being a guarantor means that your income will not be considered while sanctioning the loan, but being a guarantor to a person in a loan, incase this person defaults, the guarantor in the loan would be liable to clear off the loan from the bank/NBFC . Parents along with their married daughter cannot be the co-applicants. Sisters to each other as well as sister with brother are also not allowed to be co-applicants for the loan.
Where there are more people involved in the loan process, the document requirement also increases. So, documents related to the primary applicant are not sufficient. Documents like KYC’s, financial and other details of all the co-applicants need to be submitted.
Each of the applicant is liable in case if the property is disputed. This means that while recovery the bank/ NBFC will proceed with all the co-applicants.
A co-applicant no doubt enhances the loan eligibility and your home buying options. An estimation of the borrowed amount can easily be calculated by Mudra Home EMI Calculator. The final decision depends on the evaluation done by the loan officer who judges whether the co-borrowed enhances your credibility and benefit with the loan amount.