Does It Make Sense To Make Your Spouse The Co-applicant When Taking A Home Loan?

Owning a home we can call ours is a dream most of us nurture, isn't it? But unlike other life goals and dreams such as purchasing a car or holidaying abroad, owning a home is probably the most expensive one.

That's why we often tend to inch towards the idea of taking joint home loans, right?

Especially if you are in your 20s or 30s and aware of the benefits of taking a home loan early on in your career, then this thought of looping in a co-applicant can certainly seem to be a helping hand towards this big step of taking a home loan. But does it make sense to do so? Should you loop in a co-applicant for your loan?

Read on as we unfold the wide range of aspects to keep in mind when taking this decision.

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Who Can Be A Co-Applicant For Home Loan?

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Can you loop in anyone as your home loan co-applicant? No.

Different home loan lenders put forth a varying set of conditions pertaining to which relations can be acceptable for joint home loan applications.

Generally, only close family members or immediate blood relatives/family members are acceptable as co-applicants by banks and HFCs, such as spouse, sibling, parents etc. But it's best to enquire with the financial institution regarding the set of relations acceptable as co-applicants, before submitting your home loan application.

Here, it's important to remember that in the case of co-owned housing properties, i.e. those jointly owned by two or more people, home loan lenders tend to compulsorily require all the co-owners of the property to become co-borrowers of the home loan.

When Should You Loop In A Co-applicant For Home Loan?

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Besides the compulsory case of looping in of co-owners of housing properties as co-borrowers of the home loan, there are many other circumstances wherein adding a co-applicant can indeed enhance your overall loan eligibility as well as boost approval chances.

Some of such circumstances can be: when your (the primary applicant) monthly EMI to income ratio is on the higher side, failure to meet minimum income criteria, your job or employer profile is risky, presence of low or no credit score, you are nearing or have already gone beyond the cut-off age for loan applicants, etc.

In short, whatever the reason may be if you are facing difficulty in getting approval of your home loan application single-handedly and the chances look bleak, it's better to loop in a co-applicant.

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Benefits Of Joint Home Loan?

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There are three super benefits of taking a joint home loan.

1. Enhances Overall loan Eligibility & Approval Chances

This holds true when you loop in an earning co-applicant whose income and credit profile are factored in by the financial institutions when evaluating your joint home loan application.

As the co-applicant, too, becomes equally liable for the repayment of the joint home loan, adding a co-applicant who has a stable income source, and on top of that a good credit score can certainly boost your overall loan eligibility, as the credit risk, i.e. the risk of loan default in future, tend to reduce for the home loan lender. Moreover, since the income of the co-applicant is also factored in when evaluating the overall repayment capacity and EMI affordability, the joint home loan can not only help you get the loan approved but can even fetch you a bigger loan amount (if required), due to higher overall home loan eligibility.

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2. Higher Tax Benefits

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Joint home loan tax benefits are probably the biggest advantage of adding a co-applicant.

However, it's absolutely necessary to remember that co-borrower(s) can avail these income tax benefits on home loan repayment only if he/she is also the co-owner of the concerned property. Otherwise, despite repaying the EMIs jointly, you as a co-borrower cannot avail the tax benefit if you are not the house property¡¯s co-owner!

All the co-applicants of home loan who are also the associated house property¡¯s co-owner, can independently avail the available tax benefits as per their respective contribution toward repayment of interest and principal component of home loan.

For the uninitiated, you can separately avail tax benefits on the joint home loan for the interest and principal repayment. The interest repayment of home loan taken for a self-occupied property (no limit for let out property) under Section 24b offers a tax deduction of upto ?2 lakh per financial year, and the repayment of principal component offers tax deduction of upto ?1.5 lakh in each financial year under Section 80C.

So, suppose you and your earning spouse took the joint home loan and are repaying the EMIs jointly, then overall you will be able to avail much higher overall tax benefits separately. And hence as a family too, your overall tax outgo will be considerably reduced!

Also Read: With All-Time Low Home Loan Rates, Does It Make Sense To Switch Your Home Loan Lender?

3. Concessional Interest Rates For Female Applicants

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In what's often seen as an effort to promote financial inclusion and participation of women, many home loan lenders, whether its banks or HFCs, tend to offer slightly lower home loan interest rates to women applicants.

Generally, the concession is of 0.05% (5 basis points) vis-a-vis those offered to other applicants.

Although it may seem a minor difference, it actually isn't. That's because home loans are usually big-ticket loans, and the interest component in itself takes up a huge chunk of the overall loan cost.

For example, for a home loan amount of say, ?50 lakh taken for a tenure of 20 years. The interest cost of the home loan @ 7% p.a. would come out to be ?43,03,587, whereas if that 0.05% concession is available for female applicants, the interest cost @6.95% p.a. would come out to be ?42,67,606, which is a straight difference of more than ?35,000!

Hence, the presence of such a benefit of 0.05% lower interest rate should be availed if possible, by looping in a female co-applicant for your home loan.

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What To Keep In Mind When Adding A Co-Applicant?

When thinking of availing a joint home loan, remember that both the primary borrower (you) as well the added co-borrower are equally liable to ensure the timely repayment of the loan.

In the eyes of credit bureaus, all the involved joint borrowers are responsible for the home loan¡¯s repayments. Hence, all the repayment activities associated with that home loan will reflect in each of the borrower¡¯s credit reports, and therefore impact the credit score as well.

So. Any delay or default in the joint home loan¡¯s repayment by any borrower will adversely impact the credit scores of other co-borrowers too.

That's why its important to carefully factor in the financial repayment history and discipline of the person you are contemplating to add as the home loan co-applicant. Avoid adding someone who has remained financially indisciplined or may have a weak repayment capacity, as such people can do more harm than good to your joint home loan application and repayment journey!

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