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. Spouse
- 2. Brother and Brother
- 3. Father / Mother and Son
- 4. Father / Mother and Unmarried Daughter
Some relations are generally not eligible to be co-applicants and includes:
- 1. Brother and Sister
- 2. Sister and Sister
- 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. Higher loan amount eligibility. (Calculate your home loan amount eligibility with Online Loan Calculator)
- 2. Higher chances of approval of a loan due to reduced risk for lender(s).
- 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. Strong credit history of co-applicant(s) benefits in favourable credit terms.
- 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. There can be delay at the document collection stage.
- 2. Dispute may arise in case of a fight between co-applicants.
- 3. In case of default, the co-applicant has to repay the remaining dues.
- 4. The low credit score of co-applicant will have a negative impact on main applicant’s home loan application.
- 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.
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.