Buying a new house is a big decision for most people and it is needless to say that oftentimes interested buyers seek home loans to help finance their purchase. In these situations, many people prefer to take a joint home loan for various reasons.
But before we get to discussing the pros and cons of Joint Home loans let us take a quick look at what such loans mean, how they work and all that you should be aware of before taking a decision.
What Do Joint Home Loans Mean?
Referring to a type of secured loan, joint home loans can be availed by individuals along with a co-borrower who shares equal financial obligations to benefit from low home loan rates and tax advantages. A co-applicant is somebody who submits a loan application alongside a co-borrower.
Leading banks’ policies state that co-applicants can be anyone as long as they are not minors, have a reliable source of income, and their relationships with the other applicant are acceptable in terms of the company norms. These relationships can typically be between two brothers, a husband and wife, a mother and son, or a father and son.
Joint Home Loan Eligibility –
You must meet the following requirements to be eligible for a joint home loan:
- Indian citizens who are at least 18 years old and have two years of work experience.
- The applicant’s minimum income must be at least 25,000.
- Co-applicants: A home loan cannot be applied for jointly by more than six people.
Relationship between the applicants: The conditions under which relatives may be co-applicants for a home loan application are outlined in the bank policy. Husband and wife, brothers and sisters, mothers and sons, and father and sons are the only relatives that are permitted to co-apply and obtain a joint house loan.
Co-owner vs. Co-applicant –
Before taking a joint home loan one must be aware of the difference between a co-owner and a co-applicant. A co-applicant need not be a part owner of the property, but a co-owner is a joint owner of the same.
The fundamental rule is that each co-owner of the property must submit a separate loan application. All co-applicants, however, are not required to be co-owners. When evaluating credit or loans, just their income is taken into account.
Pros of Joint Home Loans –
There are some significant advantages of Joint Home Loans as listed below –
1) Higher Loan Eligibility:
By combining their earnings while applying for a joint house loan, the applicants are qualified for a higher loan amount and can subsequently purchase a larger/better property.
2) Higher Tax Benefits:
By applying jointly for a house loan, each co-applicant can benefit individually from the tax deduction available on the loan as long as they are co-owners of the property and are each contributing to the loan repayment.
Two points must be known in this regard-
- A deduction for principal repayments up to a maximum of Rs. 1.50 lakh is allowed under Section 80C of the Income Tax Act.
- If the property is self-occupied, Section 24 allows a tax deduction for home loan interest payments of up to Rs 2 lakh; however, if the property is rented out, there is no maximum restriction and the entire interest can be deducted.
Since each co-applicant is qualified for the aforementioned deduction on their own in a joint house loan, the total tax benefits are significantly bigger than they would be in a single applicant loan. Subject to the aforementioned limitations, the real tax benefit that each co-applicant receives is based on how much they contributed to the principal and interest repayment.
3) Ease of Property Transfer:
It is simple and hassle-free to transfer ownership of the property to the other owner in the event of the sudden death of one of the co-owners. Typically, to transfer property smoothly, one would need to present valid documentation such as the death certificate of the property owner and papers of the legal heir. In the event of joint ownership, the surviving sibling may transfer the property into his or her name by simply obtaining a new registration in the name of the individual in the presence of counsel.
4) Reduced Interest Rates:
Some financial firms give female co-applicants cheaper and more flexible interest rates. There is a condition that women should be co-owners of the property in such circumstances. To receive these benefits, you must provide the KYC documents and ownership deed.
5) Repayment Flexibility:
When you apply for a home loan jointly, your eligibility increases for a larger loan sanctioned amount. Both the principal and interest components of the home loan do not require the co-applicants to contribute equally. As a result, all the parties can benefit from the freedom to choose who will make what contribution to the repayment. For instance, you can calculate your interest using the ICICI Home loan interest rate calculator and decide the terms of repayment with your co-applicant thereafter.
Cons of Joint Home Loans –
Despite its many advantages, there are a few demerits of Joint Home Loans as well, such as-
Impact on Credit Score:
The credit scores of all applicants are similarly affected if one of the cosigners on a joint house loan refuses to make the EMI payment. Experts claim that this frequently happens when loans are obtained with numerous co-applicants. Delinquency in EMIs has an equal impact on all parties, which lowers their future credit eligibility.
Added Burden In Case of Financial Difficulty:
The other borrower will immediately be liable for repayment if one of the co-borrowers has a financial emergency or loses their employment. EMI defaults and significant financial difficulties could arise from this.
Problems With Selling:
If the co-owners disagree about the future, selling the property may be difficult. If the property’s co-owners are unable to agree to a sale, one party’s investment is put on hold, which hurts the intended use for which they had decided to buy the property.
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