Role of a Co-Applicant in Home Loan

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Co-Owner
Co-Borrower
Co-Applicant

These three are the common finance terms which are frequently used, when you are researching about home loans. However, many of the us don’t know the exact meaning & implications of these terms and gets confused.

Co-owner (or partner) – an individual or a group that has a legal share in the property.

Co-applicant (or co-borrower) – a person who applies for a loan along with primary borrower and who is equally liable to repay the loan, when the primary applicant defaults/dies. A co-applicant may or may have not legal rights on the property.

A general rule is that while applying for a home loan, all co-owners of a property has to be co-applicants whereas the reverse cannot always be true, i.e. all the co-applicants may not be the co-owners of the property. E.g. even though wife is the sole owner of the property, loan can be taken by husband and wife as co-applicants.

Moreover, in cases where the asset is mortgaged for availing loans, the lender will insist on taking all the co-owners as co-applicant(s).

Who can be a co-applicant?

As per most Banks and Finance Companies, an immediate family member can be a co-applicant. He / She can be salaried or a self employed person. A Non-Resident Indian is also eligible to be a co-applicant.

Most common relationships that can be co-applicant includes:

  1. 1. Spouse
  2. 2. Brother and Brother
  3. 3. Father / Mother and Son
  4. 4. Father / Mother and Unmarried Daughter

Some relations are generally not eligible to be co-applicants and includes:

  1. 1. Brother and Sister
  2. 2. Sister and Sister
  3. 3. Father / Mother and Married Daughter

(Note: Whether to accept or reject the person as a co-applicant is sole discretionary right of a lender)

Key Advantages of Having a Co-Applicant

  1. 1. Higher loan amount eligibility. (Calculate your home loan amount eligibility with Online Loan Calculator)
  2. 2. Higher chances of approval of a loan due to reduced risk for lender(s).
  3. 3. Tax deductions for co-applicants under Section 80C and & Section 24 of the Income Tax Act, given they are also co-owners of the property.
  4. 4. Strong credit history of co-applicant(s) benefits in favourable credit terms.
  5. 5. In case of death of one of the applicant, the survivor automatically becomes the owner if he/she is already co-owner of the property. No need to file any legal suit for a succession of property.

Key Disadvantages of Having a Co-Applicant

  1. 1. There can be delay at the document collection stage.
  2. 2. Dispute may arise in case of a fight between co-applicants.
  3. 3. In case of default, the co-applicant has to repay the remaining dues.
  4. 4. The low credit score of co-applicant will have a negative impact on main applicant’s home loan application.
  5. 5. The signatures of all the co-applicants are required on each paper from beginning to closure. In absence of the co-applicant, the given request cannot be processed.

Conclusion

To have a co-applicant in a home loan is not a legal requirement. Factors such as continuously increasing housing rates, low income / eligibility and/or low credit score are making it difficult for individuals to avail loan single-handedly. Though, a person must carefully read & understand the rules & laws before becoming a co-applicant in a home loan.

Hope this article has resolved most of your queries about co-applicant. If you still have any questions about co-applicant or home loan, then you can get free consultation here.


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