Understanding Co-Applicants in Home Loans: Meaning, Eligibility, Tax Benefits & Responsibilities

Buying a home is a significant financial decision, and often, individuals seek additional support to enhance their loan eligibility. This is where a co-applicant in a home loan plays a crucial role. By adding a co-applicant, borrowers can improve their loan eligibility, share repayment responsibility, and even enjoy tax benefits. In this article, we will explore the meaning of a co-applicant in a home loan, eligibility criteria, tax benefits, and responsibilities associated with it.

What is a Co-Applicant in a Home Loan?

A co-applicant in a home loan is a person who applies for the loan along with the primary borrower. The co-applicant shares the responsibility of loan repayment, though ownership of the property is not mandatory unless they are also a co-owner.

Including a co-applicant can improve the primary applicant’s chances of securing a home loan, especially when the co-applicant has a stable income and good creditworthiness.

Who Can Be a Co-Applicant in a Home Loan?

Not everyone can be a co-applicant in a home loan. The relationship between the primary borrower and co-applicant should be legally recognized by financial institutions. Here are the common categories of eligible co-applicants:

Eligible Co-Applicants:

• Spouse: A husband and wife can jointly apply for a home loan, making them the most preferred co-applicant combination.

• Parents and Children: A father/mother can apply for a home loan with their son or unmarried daughter.

Who Cannot Be a Co-Applicant?

• Friends and distant relatives cannot apply as co-applicants.

• A minor cannot be a co-applicant.

• Sister-sister or brother-sister combinations are usually not permitted unless explicitly stated by the lender.

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

A significant advantage of having a co-applicant in a home loan is the potential tax benefits. Both co-applicants can claim tax deductions if they are also co-owners of the property and contribute to loan repayment.

Tax Deductions Available:

1. Section 80C:

• A deduction of up to ₹1.5 lakh per annum on principal repayment.

• Applicable only if the house is not sold within 5 years of purchase.

2. Section 24(b):

• Tax benefit of up to ₹2 lakh per annum on interest repayment for a self-occupied property.

• No upper limit for tax deduction on interest if the property is rented out.

3. Section 80EE & 80EEA (For First-Time Home Buyers):

• An additional deduction of ₹50,000 (80EE) or ₹1.5 lakh (80EEA) on interest repayment is available for first-time buyers meeting specific criteria.

Conditions to Avail Tax Benefits:

• The co-applicant must also be a co-owner of the property.

• Tax benefits can be availed in proportion to the ownership share in the property.

• The repayment must be made from the co-applicant’s own sources.

Responsibilities of a Co-Applicant in a Home Loan

Being a co-applicant in a home loan comes with important responsibilities. It is not just about helping the primary applicant secure a loan; a co-applicant has legal and financial obligations as well.

1. Loan Repayment Responsibility:

• The co-applicant is equally liable to repay the loan if the primary borrower defaults.

• Any missed EMI payments will impact both applicants' credit scores.

2. Legal Liability:

• If the primary borrower fails to make payments, the lender can legally demand repayment from the co-applicant.

3. Credit Score Impact:

• If the primary applicant defaults or delays payments, it will negatively affect the co-applicant’s credit score.

4. Limited Rights Without Ownership:

• If a co-applicant is not a co-owner, they do not have rights over the property despite being responsible for loan repayment.

Benefits of Adding a Co-Applicant to a Home Loan

Including a co-applicant in a home loan provides various advantages, both for the primary borrower and the co-applicant:

• Higher Loan Eligibility: The combined income of both applicants allows for a higher loan amount.

• Competitive Interest Rates: Some lenders offer preferential interest rates for women co-applicants.

• Shared EMI Burden: Loan repayment responsibilities can be divided, reducing financial strain.

• Tax Benefits: As mentioned earlier, both co-applicants can avail of tax deductions if they are also co-owners.

How to Apply for a Home Loan with a Co-Applicant?

Applying for a home loan with a co-applicant is a straightforward process. Here’s a step-by-step guide:

1. Choose a Lender: Research and select a financial institution like Aavas Financiers that offers competitive home loan interest rates and favorable terms.

2. Check Eligibility: Ensure both applicants meet the lender’s eligibility criteria.

3. Gather Documents: Required documents typically include:

• Identity and address proof (Aadhaar, PAN, Passport, etc.)

• Income proof (Salary slips, IT returns, bank statements)

• Property documents

• Relationship proof between the applicants

4. Apply Online or Offline: Most financial institutions provide online and offline application options.

5. Loan Processing & Approval: The lender will assess creditworthiness, income stability, and property value before approval.

6. Loan Disbursal: Once approved, the loan amount is disbursed as per agreement.

Key Considerations Before Choosing a Co-Applicant

Before adding a co-applicant, consider the following:

• Ensure a strong and trusted relationship to avoid future disputes.

• Clearly define the ownership percentage to avail of tax benefits.

• Evaluate the financial stability and creditworthiness of the co-applicant.

• Understand the legal and financial obligations associated with being a co-applicant.

Conclusion

A co-applicant in a home loan can significantly improve loan eligibility, lower interest rates, and provide tax benefits. However, it also comes with responsibilities, including repayment obligations and credit score impacts. If you are considering a home loan, evaluate your options carefully and choose a co-applicant wisely to maximize the benefits.

At Aavas Financiers, we offer flexible home loan solutions tailored to meet your needs. Contact us today to explore your options and take a step closer to your dream home.

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