Co-applicant in a home loan: What it means, who qualifies & why it’s a game-changer

​Alone we can do so little; together we can do so much." — Helen Keller​

Purchasing a home is a significant milestone, often requiring substantial financial support. In India, many individuals opt for home loans to fulfill this aspiration. While one can apply for a home loan individually, adding a co-applicant can offer numerous advantages. But what exactly does it mean to have a co-applicant, and how does it influence your home loan journey?​

According to data from the National Housing Bank, approximately 80% of home loan applications in India are joint applications, highlighting the prevalent practice of involving co-applicants to enhance loan eligibility.​

Understanding Co-Applicant in a Home Loan

A co-applicant is an individual who applies for a home loan alongside the primary borrower. This person shares the responsibility of loan repayment and may also have ownership rights to the property. Common co-applicants include spouses, parents, or siblings. Incorporating a co-applicant can significantly bolster the loan application by combining financial strengths. ​

Who Qualifies as a Co-Applicant?

Typically, co-applicants should be immediate family members. Eligible relationships include:​

• Spouses: Married couples can jointly apply, combining incomes to enhance eligibility.​Kotak

• Parents and Children: An unmarried daughter can co-apply with parents; however, a father's income might not be considered post-marriage of the daughter. ​

• Siblings: Brothers can co-apply if residing together and intending to continue in the new property. ​

It's important to note that minors cannot be co-applicants, and some institutions may have specific policies regarding co-applicants. ​

Benefits of Adding a Co-Applicant

1. Enhanced Loan Eligibility: Combining incomes of co-applicants increases the total income considered, potentially qualifying for a higher loan amount. ​

2. Improved Loan Approval Chances: A strong credit history and stable income of co-applicants can boost the application's credibility, increasing approval likelihood.

3. Attractive Interest Rates: Financial institutions may offer favorable interest rates when co-applicants have good credit profiles, reducing the overall loan cost. ​

4. Tax Benefits: Co-applicants who are also co-owners can claim tax deductions under Section 80C (principal repayment) and Section 24(b) (interest paid) of the Income Tax Act, proportionate to their share in the property. ​

Responsibilities of a Co-Applicant

• Loan Repayment: Co-applicants are equally responsible for timely loan repayment. In case of default by the primary borrower, the co-applicant is liable to repay the loan.

• Property Ownership: Being a co-applicant often implies co-ownership of the property, entitling the co-applicant to rights over the property. ​

• Credit Impact: The loan's repayment history affects the credit scores of both the primary borrower and the co-applicant.

Co-Applicant vs. Co-Signer

While both roles involve shared responsibility, there's a distinction:

• Co-Applicant: Directly involved in the loan application, shares ownership of the property, and is equally responsible for loan repayment.​

• Co-Signer: Not necessarily involved in property ownership but guarantees loan repayment if the primary borrower defaults. Co-signers are typically not involved in the day-to-day management of the loan. ​

Conclusion

Incorporating a co-applicant in a home loan application can be a strategic move to enhance loan eligibility, secure favorable terms, and share the financial responsibilities associated with homeownership. It's crucial to understand the roles, benefits, and obligations of co-applicants to make informed decisions that align with your financial goals and family dynamics.​

FAQs

1. Is it mandatory to have a co-applicant for a home loan in India?

No, having a co-applicant is not mandatory. However, including one can improve loan eligibility and approval chances. ​

2. Can a friend be a co-applicant for a home loan?

Typically, co-applicants are immediate family members. Some lenders may allow friends, but this is less common and subject to the lender's policies. ​

3. Can a co-applicant claim tax benefits?

Yes, co-applicants who are co-owners can claim tax deductions on principal and interest payments, proportionate to their share in the property. ​

4. What happens if a co-applicant defaults on the loan?

Both the primary borrower and co-applicant are equally responsible. Defaulting can negatively impact both parties' credit scores and may lead to legal action. ​

5. Can a co-applicant be removed from a home loan after approval?

Removing a co-applicant post-loan approval is challenging and may require refinancing the loan. It's advisable to finalize co-applicant decisions carefully.