Rejection of your home loan application can take you a step backward in realizing your dream of owning a home. Given that adding a co-applicant can help bail you out of such scenarios, it's important to weigh the pros and cons before taking the decision to go for a joint home loan. Discussed below are things to keep in mind before submitting joint home loan application:
1. Enhances loan eligibility
Borrowers often face difficulties in getting their home loan application approved owing to failure in fulfilling various eligibility criteria such as minimum income, debt to income ratio, credit score etc. In such cases, adding a co-applicant would increase your overall loan eligibility and even help avail a higher loan amount, if required. When you take a joint home loan with a credit worthy co-applicant having strong credit score and satisfactory repayment capacity, your chance of availing loan improves. However, make sure that your and the co-applicant's debt to income ratio doesn't exceed beyond 50-60%. Failure to do so may lead to rejection of the home loan, or you may have to settle for a loan with a higher interest rate.
2. Higher tax benefits
Most homebuyers are aware of the tax benefits available on home loan under Section 80C and 24b of the Income Tax Act. The interest repaid by the borrower can be availed as deduction under Section 24b, up to Rs 2 lakh every year, whereas the principal repaid is eligible for deduction under Section 80C, up to a maximum of Rs 1.5 lakh a year. Not all may be aware that jointly applying for a home loan enables co-borrowers to separately avail these tax benefits. However, remember that the co-borrower can avail tax benefit only if he/she is also the co-owner of the property. Only those who are both co-borrower as well as co-owner can avail the tax benefits.
3. Lower interest rates for women co-applicants
Many lenders offer differentiated interest rates for women co-applicants of home loan. These rates are usually around 0.05% (5 bps) lower than the standard rates provided by the lender. To avail such benefit, women must either be the sole or joint owner of the concerned property, and also the primary or co-applicant of the home loan.
Most banks usually accept women as co-applicants only if the woman is either the owner/ co-owner of the property involved, or her income has been taken into consideration while assessing the loan eligibility and repayment capacity.
4. What to watch out for
Lenders evaluate your joint loan application on the basis of both of your credit scores, income, age, debt to income ratio etc. Your loan application may get rejected if your co-applicant's credit score in on the lower side, given that lenders hesitate to lend to those who lack disciplined credit repayment behaviour. Lenders approve a joint loan application only if both primary applicant and co-applicant's repayment capacity is satisfactory. Also, remember that rejection of a home loan application may further pull down your credit score. In some cases, lenders may consider lending you at a higher interest rate instead of outrightly rejecting your joint loan application.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)