Home loan, like any other kind of loan, involves huge commitment to financial discipline and can place enormous burden of paying back the money, along with interest. Thus, taking a home loan as a sole applicant can involve a lot of stress and undue pressure, which might be very difficult to cope up with. You also want to make sure to keep you and your family out of troubled waters. However, you are not helpless, even the diciest of situations have a solution. And as far as home loans are concerned, the good news is that you can always share the burden with a co-applicant.
That’s right, you read that correctly. You can apply for a loan, with another person. This actually lessens the burden on your shoulders and allows both to share the responsibility towards the loan, on an equal basis.
What are the benefits?
A co-applicant is a person who applies, along with the borrower, for a loan. The reason for allowing this feature as part of home loans is because the income received by the co-applicant can be used to supplement the income of the borrower, increasing their eligibility to get higher amounts of loan sanctioned and higher chances of loan approval. Pretty nifty, isn’t it?
Who cannot be a Co-Applicant?
In most of the cases, it is not a compulsion to have a co-applicant while applying for a home loan, either by mandate or by law. Although it is beneficial to have a co-applicant, it must be kept in mind that not everyone can become the co-applicant to a home loan. In fact, banks and HFCs (Housing Finance Companies) have specified only certain, specified relations as co-applicants, and this rule necessarily excludes minors from being co-applicants. Interestingly, there are certain situations where it is legally bound to have a co-applicant, for instance, when there is a joint owner to the house you wish to purchase with the home loan.
As far the Indian scenario is considered, banks and financial institutions have allowed people bound by familial relationships to be co-applicants to loans. Some of these are:
- Father and son: In this case, if the borrower is just the son, then he can apply for the loan with his father as the co-applicant. In this manner, their joint incomes would be used to determine the combined eligibility. The condition for this co-application is that the property should also be jointly owned by both father and son.
In a situation where a person has two or more sons, and if he wants to apply jointly either with one or both of them, then he should not be the main owner of the property. The reason for this is that on his death, an inheritance dispute might arise when his children do not own the property jointly. Hence, the father can only be the co-owner of the property, or not own the property at all.
- Unmarried daughter and father: An unmarried daughter is allowed to apply for a loan with her father. Unlike the conditions placed on when a father and son jointly apply, the property just has to be in the name of the daughter and the income of the father is not to be considered. This is done to avoid any legal problem when the daughter gets married.
- Unmarried daughter and mother: An unmarried daughter is eligible to apply jointly with her mother. Just as in the requirements necessitated for a co-application of an unmarried daughter and her father, here too, it is required that the daughter own the property and the income of the mother is not considered while evaluating the eligibility.
- Brother and brother: A brother may declare his brother to be the co-applicant while requisitioning a home loan, provided that both of them are currently staying together, and they intend to do so in the new property as well.
- Husband and wife: From the perspective of a bank or a financial institution, this kind of co-option is ideal as it avoids unnecessary legal complications. For this reason, one can name their spouse as a co-applicant and his or her spouse’s income would be considered while determining the eligibility for the home loan.
However, at present, there are certain types of relationships that can’t be deemed to be co-applicants. They include:
- Married daughter with her mother or father
- Sister and sister
- Sister and brother
The Duties of a Co-Applicant
A co-applicant is technically a person who has agreed to share the borrower’s responsibilities when applying for the loan. Therefore, when the original borrower dies or otherwise refuses to participate in the partnership, the entire responsibility of the loan falls completely on the shoulder of the co-applicant. This is because the co-applicant is technically and legally a co-borrower and therefore, remain liable to fulfil the commitments to the borrowed amount in the event of any contingency.
It should be emphasized that having a co-applicant is no legal necessity. While applying for a loan, you should consider various factors before deciding whether to opt for a co-application scheme while purchasing a home loan, or not.
While consideration, apart from the duties that a loan entails on a co-applicant, the benefits must be considered as well. They include having a high chance of your loan application getting an approval; the increased eligibility from the combined incomes that can enable you to get a bigger home loan, therefore a bigger home; and it brings a medley of tax benefits both for the borrower and the co-applicant.
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