Eligibility Rules for Adding a Co-Applicant in a Home Loan

Buying a home has always been a significant milestone, and over the past few decades, it has been made easier than ever before, thanks to the availability of home loans in India. Despite the ease that home loans offer to buyers, many find themselves looking for additional support for enhancing their home loan eligibility.

Table of Content

• Co-Applicant Meaning
• How a Co-Signer and Co-Applicant in a Home Loan Differ
• Benefits of Having a Co-Applicant in a Home Loan
• Tax Benefits of Having a Co-Applicant in a Home Loan
• Who Can be a Co-Applicant?
• Who Cannot be a Home Loan Co-Applicant?
• Things to Keep in Mind When Choosing a Co-Applicant
• The Responsibilities of a Home Loan Co-Applicant
• Applying for a Home Loan with a Co-Applicant

One of the most common and effective solutions that people tend to opt for is having a co-applicant in their home loan. Availing a home loan along with a co-applicant comes with a number of benefits, allowing borrowers to improve their eligibility for a home loan, share repayment responsibility, and enjoy several tax benefits.

Co-Applicant Meaning

An individual who applies along with the primary borrower for a home loan is called a co-applicant. Including a co-applicant can help improve the chances of home loan approval. Unless the co-applicant is also a co-owner of the property, ownership of the property is not mandatory, and loan repayment responsibility is shared by the primary borrower and co-applicant.

How a Co-Signer and Co-Applicant in a Home Loan Differ

Benefits of Having a Co-Applicant in a Home Loan

• Improved Home Loan Eligibility: Having a co-applicant in a loan improves the chances of loan approval, as the credit scores and financial profiles of both applicants are taken into consideration.
• Higher Loan Amounts: The maximum loan amount offered by the lender is calculated based on the applicant’s eligibility. As the combined income of both applicants is factored into the eligibility calculation, a higher loan amount can also be availed.
• Competitive Interest Rates: Applying for a home loan with a co-applicant reduces the involved risk for the lender. This allows lenders to offer preferential interest rates to borrowers who apply with a co-applicant, especially for women co-applicants.
• Reduced EMI Burden: Applying for a home loan with a co-applicant allows for the loan repayment responsibilities to be shared among the primary borrower and the co-applicant, helping reduce financial strain.

Tax Benefits of Having a Co-Applicant in a Home Loan

If the primary borrower and co-applicant are both co-owners of the property and contribute to home loan repayment, both can claim tax deductions.

• Section 80C: Up to Rs 1.5 Lakh per annum on principal repayment can be claimed as a deduction (applicable only if the property is not sold within the first five years since its purchase.
• Section 24(b): Tax benefits of up to Rs 2 Lakh per annum can be claimed on interest repayment for self-occupied property. If the property has been rented out, there will be no upper limit for tax deductions on interest repayment.
• Section 80EE and 80EEA: First-time home buyers who meet specific criteria can claim an additional deduction of Rs 50,000 (under section 80EE) or Rs 1.5 Lakh (under section 80EEA) on interest repayment.

Conditions for Availing These Tax Benefits

• The primary borrower and co-applicant should both be co-owners of the property.
• The co-applicant must have made repayments from their own sources.
• The tax benefits can be availed by the primary borrower and co-applicant in proportion to their ownership share in the property.

Who Can be a Co-Applicant?

For an individual to be eligible for being a co-applicant in a loan for buying property, their relationship with the primary borrower must be legally recognised by financial institutions.

Who Is Eligible to be a Home Loan Co-Applicant?

• Spouse: The most preferred co-applicant combination is that of the primary borrower and their husband or wife, who jointly apply for a home loan.
• Parents and Children: Either parent (father or mother) can apply for a home loan with their own son or unmarried daughter as the co-applicant.
• Siblings: Usually, sister-sister or brother-brother combinations are not permitted, unless it is stated explicitly by the loan provider.

Suggested Read: Home Loan Requirements: Essential Documents & Criteria

Who Cannot be a Home Loan Co-Applicant?

• A minor (an individual below the age of 18) cannot be a co-applicant.
• Friends of the primary borrower cannot apply as co-applicants.
• Extended family members or distant relatives cannot be a co-applicant.

Things to Keep in Mind When Choosing a Co-Applicant

• The primary borrower and the co-applicant both must have a clear understanding of the financial and legal obligations that come with having and being a co-applicant.
• The primary borrower must ensure that they choose a co-applicant with who they have a strong and trusted relationship, so they can avoid any future disputes.
• To be eligible for availing tax benefits, the ownership percentage of the property must be defined clearly.
• Evaluating the creditworthiness and financial stability of the co-applicant is crucial.

The Responsibilities of a Home Loan Co-Applicant

• Loan Repayment: The co-applicant shares equal responsibility with the primary borrower for repaying the loan and is equally liable in case the primary borrower defaults. Any missed EMI payment will impact the credit scores of both applicants.
• Legal Liability: In the event of the primary borrower failing to make payments, the lender has the right to legally demand repayment from the co-applicant.
• Impact on the Credit Score: Timely repayments and responsible management of debt help improve the credit score of not only the primary borrower but also the co-applicant. On the other hand, if the primary borrower delays or defaults on payments, it will have a negative impact on the co-applicant’s credit score as well.
• Limited Rights without Ownership: If the co-applicant is not a co-owner of the property, they do not have rights over the property either, even though they are equally responsible for the repayment of the home loan.

Suggested Read: Busted Myths about Loan Against Property

Applying for a Home Loan with a Co-Applicant

• Choose a Loan Provider: Put in some research to compare various lenders and choose the one that is offering competitive interest rates and favourable terms that meet your requirements.
• Check the Eligibility Criteria: Ensure that the primary home loan applicant and the co-applicant both meet the eligibility criteria set forth by the lender.
• Gather the Required Documents: Collect all important documents that are required for applying for a home loan. While the documentation requirements may vary with different lenders, most need you to submit an identity and address proof, proof of income, property documents, and relationship proof of the applicants.
• Apply for the Loan: You can either visit a nearby branch of the lender to apply offline, or you can visit the lender’s official website or portal to start your application.
• Loan Processing and Approval: Once the application has been submitted along with the required documentation, the lender will assess the applicants’ creditworthiness, property value, income stability, etc., before approving the loan.
• Loan Disbursal: After approval, the loan amount will be disbursed by the lender as per the loan agreement.

At Muthoot Finance, you can explore a range of affordable home loan schemes and avail numerous benefits, like flexible EMIs, multiple repayment options, quick and straightforward application processes and much more. With Muthoot Finance, you can apply for a higher loan amount and choose an extended tenure to enjoy lower rates of interest.