When it comes to a home loan, we come across various terms like a joint owner, co-owner, co-applicant, co-borrower etc. These terms may seem daunting to the uninitiated. But it pays to know more about these in detail before you decide to buy that dream home/property so that you know what to expect. Let us look at the dynamics of being a co-applicant.
Who is a co-applicant?
Anyone who applies for the loan along with the primary applicant is called a co-applicant.
Did you know a co-applicant need not be the co-owner or joint owner of the property? Which would, in fact, mean that you can co-apply for a home loan even if you do not have ownership of the property.
Who can be a co-applicant?
All joint owners of a property have to be co-applicants for a home loan. Whereas the opposite is not true.
Banks and financial institutions have specified people in certain relationships who can act as co-applicants for a home loan. These are husband-wife, a father and son, and brothers. There are certain restrictions when it comes to other relations like a father-unmarried daughter. Also, a minor cannot act as co-applicant of a loan.
So, those of you thinking of pulling in your friend as a co-applicant, it would not be accepted by banks/financial institutions.
What is the liability of a co-applicant?
A co-applicant need not be a co-owner of the property. However, a co-applicant is equally liable as a primary applicant to pay back the loan. In case of a default by the primary applicant, the bank is well within its limits to recover the loan from the co-applicant.
So, put in a lot of thought before signing those loan documents as a co-applicant. Do it only if you are fully aware of the terms and conditions that come attached to the loan.
Benefits of being a co-applicant
As a homeowner, one is entitled to income tax benefits like rebates on interest and principal repayments.
Co-applicants who are co-owners are eligible for benefits in proportion to their contribution towards the cost/EMI repayment. Co-applicants' income (only when it is regular) can be considered to increase the loan eligibility. However, merely being a co-applicant does not earn you any benefits, unless you are a co-owner.
Is a co-applicant necessary for a home loan?
As we see, just being a co-applicant does not benefit an individual in any way. Yet banks and financial institutions do insist on having a co-applicant for loans. Why is it so? And is it necessary to have a co-applicant for a home loan?
Lenders mandate adding of a co-applicant because it gives them that extra surety in case of a default or death of the primary applicant.
Also, in case of disputes on the property, having a co-applicant works better for lenders.
At the same time, it is not a legal requirement to have co-applicants for home loans.
However, there might be very few lenders in the market who would lend a big-ticket loan to an individual applicant. There have been instances where there have been approvals for single applicants provided your credit score, age, income and other EMIs are within set limits. Moreover, you should clearly specify that you would not want to include a co-applicant.
The decision to include a co-applicant should be made consciously. After all, who would want a family member to be burdened with loans in case of an emergency?
This article is contributed by RoofandFloor , part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group
