Taking home loan is a huge responsibility, but a co-applicant can help you to share your debt-burden and increase the chance of getting a higher loan as the income of co-applicant will also be considered by the lender.
Who is a co-applicant?
A co-applicant is a person who applies along with the primary borrower for a home loan. It is not mandatory to have a co-applicant and lenders also do not mandate it except in a few conditions. However having a co-applicant makes it easier to comply with the eligibility criteria set by bank since income of both applicants is clubbed and, therefore, they can have access to a bigger loan if they wish to.
For example, if your monthly salary is Rs 50,000 and you want an amount of Rs 10 lakh as home loan. Based on your income, you can’t get this amount. But if you add a co-applicant earning Rs 40,000 per month, then lenders will consider your combined income to disburse the loan.
However, in certain scenarios, the income of the co-applicant may not be considered to compute the income eligibility criteria for the loan as explained further below.
Who can be a Co-applicant?
There are fixed rules about who is eligible to be a co-applicant. A minor cannot be a co-applicant as she/he cannot enter a contract legally. Generally, spouse and blood relatives qualify to be co-applicants. Acceptable combinations for being co-applicants are:
Father and Son(s): In case of a single son, both father and son are eligible to apply for a joint loan. The income of both applicants will be considered, the property will be in the name of both applicants and either can be the principal owner. Whereas, in case of more than one son, the father and son can apply jointly for a loan, but the father cannot be the main owner of the property. This is because of inheritance issues since after the father’s death, all children inherit the property. Hence, in such a scenario, the father will be the co-applicant and his income may not matter.
Father and Unmarried Daughter: If father and unmarried daughter apply for a joint home loan then the property needs to be registered in the name of the daughter only in order to avoid any potential legal disputes after the daughter’s marriage.
Mother and Unmarried Daughter: Same as in the case of father and daughter combination, the property is registered in the name of the daughter only.
Siblings: Two brothers can be co-applicants in case they are currently staying together and planning to stay together in the new property too. In this case, siblings will be co-owners compulsorily. However, a brother and sister can’t apply for a joint home loan.
Spouse: Your spouse can be your co-applicant. Though it is not mandatory, both can be co-owners and income of both applicants can be considered to decide the eligibility criteria.
Do all co-applicants need to be co-owners?
This depends on the relationship between the co-applicants and to some extent on the lender’s policies too. Lenders insist that all the co-owners of a property be co-applicants to a home loan but there is no compulsion on all co-applicants to be co-owners. In certain combinations like when two brothers apply for a loan together, banks and Housing Finance Companies (HFCs) may ask the co-applicants to be co-owners. But, if an unmarried daughter is applying with father then lenders insist that the father should not be a co-owner. When a couple applies for a loan together they have choice to be or not to be co-owners.
What is the Difference between Co-applicants and Co-owners?
Co-applicants refer to two or more people who apply for a loan together and are mutually responsible for repaying it. Co-applicants share the responsibility of paying a loan while co-owners enjoy the right over a property. If two people are co-owners, then both own the property jointly for which they are co-owners.
The difference between a Co-applicant and a Guarantor
Borrowers confuse a co-applicant with a guarantor, but being a co-applicant is not same as being a guarantor. A co-applicant is a person who applies along with the primary borrower for a home loan while a guarantor agrees to carry the burden of a loan if the applicants can’t repay a loan. Co-applicants are collectively responsible for paying a loan; while a guarantor is called on to discharge his/her responsibility only when the applicants fail to do so. A guarantor cannot be a co-owner, his/her income is not considered for computing the loan eligibility and he/she is not eligible for any tax deductions.
Are all applicants responsible for paying the EMI?
No, there is no rule that states that all applicants are responsible for paying the EMI. How the applicants decide to divide the burden of the EMI between them is their discretion. The lender is least bothered about who is paying what as long as the EMIs are paid in time. EMI sharing influences the tax benefits each applicant is eligible for.