Why You Should Consider Co-Borrowers for Higher Home Loan Eligibility

“Thank you so much for your valuable advice bro,” Harsh said, hugging his friend Rehan, who is at Harsh’s new home for the housewarming ceremony. “You didn’t just help me materialise my dream, but also showed me a way to save a big amount of money,” Harsh expressed his gratitude.

Housewarming, or ‘Griha Pravesh’ is an auspicious occasion, and the festivities that fill Harsh’s new home shows that. Things, however, were not so bright a month back. Harsh Dixit, 36, who is getting married next year, made a fatal blunder when he transferred a hefty amount to book a property without checking his home loan eligibility. Subsequently, it so happened that the bank was not prepared to sanction the required loan amount, and Harsh was plain clueless about what to do.

This is when his friend, Rehan Alam suggested Harsh to take his brother Rajvir, a government employee, as a co-applicant for higher home loan eligibility. Over the next three days, the home loan application sailed through the approval process smoothly, and in another seven days, Harsh got possession of his new home. He was not aware that siblings could also be co-borrowers, and he could not thank Rehan enough for getting him out of the crisis.

Inclusion of one or more co-borrowers will boost home loan eligibility, which can translate into a bigger property in a preferred location. Shared loan burden and income tax benefits are the added advantages of a joint home loan. Here’s everything you need to know about joint housing loans.

Who Can Be a Co-Applicant in a Joint Home Loan?

Immediate family members, such as parents, spouse, children, and/or siblings can be the co-borrowers for a joint home loan. The co-applicant should either be salaried, a professional, or a self-employed individual. Some banks and housing finance companies also allow Non-Resident Indians (NRIs) to be co-borrowers of a joint housing loan. Co-applicants will have equal financial responsibility regarding repayment of the home loan. Unmarried couples, business partners, or friends can be the co-owner of a property, but they are not eligible to be co-borrowers on a joint home loan.

Jointly Applying With Parents

If the income of an applicant is not adequate for getting the desired loan amount, then he/she can jointly apply with one or both of their parents for a higher home loan eligibility. In a joint home loan with parents, the retirement age of parent/parents turns out to be the most critical factor. Banks will limit the home loan tenure till the retirement age, so if there is not much service period left, it can hike the EMI amount.

Joint Housing Loan for Working Couples 

For a working couple, jointly applying for a housing loan makes good sense. Given that two incomes would support the home loan repayment, banks will feel more comfortable approving a much higher loan amount than they would normally do for an individual applicant.

With a joint home loan with the spouse, the tenure of the loan can be up to 20 years. Moreover, both the applicant and co-applicant will be eligible for income-tax benefits against the housing loan. Moreover, there are certain advantages of buying a property in the wife’s name.

Joint Application With Siblings

To avail a higher loan amount, one can make their sibling the co-owner of the property and jointly apply for a home loan. Depending on the share of ownership, both you and your sibling can claim income-tax benefits towards repayment of the home loan principal and interest. But remember, usually banks do not allow a brother and his married sister to be co-applicants in a housing loan.

Joint Home Loan Tax Benefits

The income tax department calculates the tax exemption based on the property share held by each co-applicant. If the property agreement does not mention the ownership share, the tax department will assume that co-owners have an equal share in the property.

Under Section 24 of the Income Tax Act, every co-borrower in a joint home loan can claim income-tax benefits of up to ₹2 lakhs on interest repayment. For instance, if there are two co-applicants, they can claim ₹4 lakhs as a tax deduction. The total claim, however, cannot exceed the effective interest amount paid against the home loan.

Similarly, under Section 80C of the Income Tax Act, co-borrowers can claim a deduction from their taxable income for the principal component of the loan. Each co-applicant can claim a maximum tax benefit of ₹1.5 lakhs on the principal component, but the total claimed sum cannot exceed the actual principal amount repaid.

Co-borrowers, according to their property ownership, can give an ECS mandate from their bank accounts for the home loan repayment. Also, to keep things simple, the first applicant can repay the loan, and the other co-applicants can pay their share to the first applicant. However, please remember banks mention the term – “each applicant is jointly and severally responsible for the repayment of the home loan” – which means, the responsibility of loan repayment lies on each co-applicant.