Owning a house is a dream of every individual. It is one of the most substantial investments of a lifetime. It usually involves support from the entire family. Most of us buy the house with the help of a home loan. It is important that while taking the home loan all the factors like risk-sharing, tax benefits, higher loan eligibility, and the perks of co-applicant while applying should always be checked before making the decision.
What is a Joint Home loan?
A home loan where two or more family members take a home loan together with equal financial responsibility. If one applies for a Joint Home Loan, banks usually club all incomes of the joint applicants to check the loan eligibility. The chances of getting a higher loan amount is increased. It also helps in tax benefits.
Who can be a co-applicant?
Immediate family members are only permitted to be the co-applicants for Joint Home Loan. In order to gain benefits from a joint home loan, all the applicants for the home loans must have a stable source of income: either salaried or self-employed / business. Non-Resident Indians (NRIs) are also allowed to be co-applicants for this type of loan. Both applicants may also be co-owners of the property.
|Who can be Co-Applicants||Who cannot be applicants|
|1. Married couples
2. Parent and child
3. Father/Mother and son
4. Father/Mother and unmarried daughter
5. Brothers (in case of co-owned property)
5. Unmarried partners
But why add co-applicants? So let’s understand the perks of having a Joint home loan
• Ability to get higher loan: A joint home loan – sanctioned based on the combined earning capacity of the co-applicant – help to borrow a higher amount. In short, you can purchase your ‘Dream home’
• Higher tax saving (on combined basis):All the co-owners can avail the tax benefits on a joint home loan. Each co-owner, who is also a co-applicant, can claim the following benefits:
From a taxation point of view, a joint home loan is also beneficial as all co-borrowers can claim tax deductions (Exemption of up to Rs.2 lakhs on interest paid on home loan under Section 24 of the Income Tax Act against interest repaid for each co-applicant and Exemption of up to Rs.1.5 lakh on repayment of the principal amount under Section 80C. Where two or more persons have taken a joint home loan, every assesse (person paying the income tax) can enjoy the tax benefits available under the Income-tax Act, 1961 in respect of the principal and interest paid during a financial year, on a proportionate basis.
The tax benefits are computed based on the proportion of home loans taken by the co-applicants. Also, in the case of joint borrowing, higher tax savings are possible. One needs to furnish a home-sharing agreement indicating the ownership proportion on a stamp paper.
Important things to consider before you take a joint:
· The co-applicant may not be the co-owners of the property; however, all the co-owners must be co-applicants ina joint home loan
· All co-applicants are jointly and severally liable to repay the loan. Default in payment by one applicant may adversely affect the credit score of all the applicants
· It is advisable for co-applicant to take separate life insurance to reduce the financial burden in case of death of any applicant.
Owning an asset like a home is the most profitable investment one does, hence it is important to not compromise on the cost but understand the need, evaluate the pros and cons, and ensure that it fits into one’s overall financial plan. The repayment of the loan must be planned wisely and must ensure the buyer benefits but with ease.
Views expressed in this article are the personal opinion of Abhishikta Munjal – CRO at IIFL Home Finance.