Should You Add a Co-applicant to Your Home Loan?

A co-applicant of a home loan is a person with whom you jointly apply for a home loan. So he/she becomes a co-borrower of the home loan with equal repayment responsibilities. The co-applicant need not be a co-owner of the property you are purchasing through a home loan. However, all the co-owners of the property must be the co-applicants in the loan.

Who can be a co-applicant in a home loan?

There are specified relations that can co-apply for a home loan in India, provided they are not minors.

Here are some common and acceptable relations who can co-apply for a home loan:

1. Spouses:

   A married couple is the most common relation that co-apply for a home loan. In many households in the metro cities, both partners are working and prefer to own the property jointly. Besides, having two earning co-applicants increases loan eligibility.

2. Father and son/s:

   A father can opt for a home loan with his son only if he is the only son. In this case, any one of them can be the principal owner. But if the father has more than one son and wants to take a joint loan with them, the father cannot be the principal owner.

3. Parent and daughter:

   A mother or father can co-apply for a home loan with their unmarried daughter, provided the property is in a daughter's name. They cannot co-apply with a married daughter.

4. Brothers:

   Many lenders allow two brothers to be co-applicants only if they are co-owners of the property they are purchasing, share the same residential address at the time of loan application, and intend to continue living together.

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Here are some relations that cannot co-apply for a home loan:

1. Parent and married daughter

2. Two sisters

3. Brother and sister

4. Unmarried couples (live-in relationships)

5. Cousins

6. Friends

What are the pros of adding a co-applicant to your home loan?

Adding a co-applicant to your home loan has several benefits, such as;

1. It increases your loan eligibility:

Banks and HFCs have several eligibility criteria for a home loan. Some applicants do not fulfil all the criteria, which results in not getting approval for the required amount or even application rejection. However, when approving your home loan application, the lenders consider the eligibility of all the co-applicants. Hence, adding a co-applicant to your home loan can increase the chances of loan approval and/or make you eligible for a higher amount. For example, suppose you need a home loan of Rs 75 lakhs, but you are eligible for a home loan of Rs 60 lakhs from your preferred bank. In such a case, if you have a working spouse and you both agree to co-apply, the bank will consider your spouse's eligibility in terms of age, income, current unpaid debts, credit history, credit score, etc. Now, if your spouse is eligible for a home loan of Rs 30 lakhs, you two can jointly opt for the required amount of Rs 75 lakhs or go for a higher amount to cover home interior and similar expenses that are covered under a home loan. Bear in mind that if the co-applicant has a high debt-to-income ratio or poor credit score, your home loan application can get rejected. Hence, it is crucial to check the eligibility of all the co-applicants before co-applying for a home loan.

2. You can take advantage of a lower interest rate for women:

Most home loan lenders offer 0.05%, i.e., 5 bps lower interest rate to women borrowers. To avail of this benefit, a woman applicant can be a primary applicant or co-applicant. However, a woman applicant can get the benefit only if she is a sole or joint owner of the property that is being purchased. Furthermore, while approving the loan, most banks consider the woman applicant's credit history and repayment capacity.

3. Tax benefits to all the co-applicants:

You might be aware that homeowners can get tax benefits under Section 80C and 24b of the Income Tax Act. You can claim up to 1.5 lakhs for the principal repayment under Section 80C and up to Rs 2 lakhs for the interest paid on a home loan under Section 24b. When it is a joint home loan, all the co-applicants can claim for tax deductions under the Income Tax Act, provided the co-applicants are co-owners of the property for which the home loan is taken.

What are the cons of adding a co-applicant to your home loan?

While there are several advantages of adding a co-applicant to your home loan, there are certain things you should know when co-applying for a home loan. Banks and HFCs usually consider the eligibility and repayment capacity of all the co-applicants. The loan will get approved only if all the co-applicants meet the eligibility criteria. Hence, if one of the co-applicants has a poor credit score, a high debt to income ratio, or does not meet the lender's eligibility criteria due to any reason, it can negatively impact your loan approval and may even result in home loan application rejection. The home loan rejection not only takes your time and money but also affects your credit score.

Apart from this, in the eyes of the credit bureaus, all the co-borrowers are equally liable to repay the loan. So, if a co-applicant does not make the monthly repayments on time, it can also negatively impact the credit score of other co-applicants.

Should you add a co-applicant to your home loan?

While adding a co-applicant is beneficial to increase your home loan eligibility and get the discounted interest rate and maximum tax benefits, it is crucial to analyse the prospective co-applicant's eligibility, repayment capacity, and repayment history. If your co-applicant is financially indisciplined, his/her poor credit history can result in your home loan rejection. Similarly, irregular home loan repayments in the future can affect your credit score. Hence, make sure your co-applicant is financially disciplined and has a good credit history. A home loan is a long-term commitment; hence you should take all the precautions to make it a smooth journey.

Warm Regards,
Ketki Jadhav
Content Writer