A joint home loan is a great way to boost home loan eligibility and reduce interest rates. However, lenders have various restrictions for joint home loan applicants to avoid succession and inheritance issues.
If you’re thinking of getting a joint home loan, it may not be easy. Worry not, the loan experts from CreditMantri have put together key strategies and tips to simplify joint home applications.
What’s a joint home loan?
As the name implies, a joint home loan is taken by more than one applicant. Buying a home is one of the biggest expenditures in one’s life. To reduce the loan burden and to benefit from the lowered interest rates for women, home loan borrowers opt for joint home loans. In a joint home, the loan burden is shared equally by all the applicants.
Since there is more than one applicant, it reduces the risk borne by the lender. If the primary applicant is unable to repay the loan EMI, there is the reassurance that the secondary applicant will take over the loan repayment.
Who can be co-borrowers in a joint home loan?
The general rule of thumb is that only spouses and blood relatives can be co-applicants in a joint home loan. This includes:
- Married couples – husband and wife
- Immediate blood relatives:
- Parent and child
- Siblings – though siblings are blood relatives, most lenders do not offer joint home loans to siblings due to the fear of property disputes and other tangles down the line.
Advantages of a Joint Home Loan
- An increase in the loan amount sanctioned
This is one of the biggest benefits of applying for a joint home loan. The general rule of thumb is that the home loan EMI should not be more than 40% to 45% of your monthly income. When you apply for a joint home loan, the monthly income of all the applicants is considered to determine the maximum EMI permissible.
The amount of home loan sanctioned is proportional to the income of the applicants. A joint home loan means the income of the applicants is increased by two times, which in turn, increases the home loan amount sanctioned.
To be eligible for this benefit, the co-applicant(s) must also have a steady source of income like the primary applicant.
- Reduced Interest Rates
To encourage property ownership among women, most lenders offer discounted interest rates for women home loan applicants. By including your wife, mother or daughter in your home loan application, you can benefit from lowered interest rates. Even a slight reduction in interest rate can significantly reduce the overall loan amount, thereby decreasing the loan burden.
- Tax Relief
To enjoy tax relief on a joint home loan, co-applicants have to be co-owners of the property as well. If that’s the case, you can enjoy the following tax benefits on your joint home loan:
- Tax benefit on the principal amount: Home loan borrowers can claim deductions up to Rs. 1.5 lakhs on the principal amount under Section 80C. If a husband and wife are co-applicants, both can claim this tax benefit individually.
- Tax benefit on the loan interest: Under Section 24B, home loan borrowers can claim a yearly deduction of a maximum of Rs. 2 lakhs on the interest paid. However, note that, if the property construction is not completed within 3 years of taking the loan, the maximum interest deduction drops from Rs. 2 lakhs to Rs. 30,000.
- Shared Responsibility
Co-borrowing splits the home loan burden among all borrowers. As a result, the pressure to repay the loan is divided between both borrowers. Cities like Cuddalore will be costing less so there will not be need of applying loans, but in main cities both has to apply a loan to get a home.
Parameters Lenders Evaluate before Sanctioning Joint Home Loans
While blood relatives can apply for joint home loans, most borrowers do not prefer these relationships as there might be succession and inheritance troubles down the line.
A home loan is a long-term loan. Lenders do not wish to be embroiled in succession issues if one of the co-applicants passes away or there are familial troubles later. Hence lenders want to make sure that they sanction joint home loans, only when they can be sure that there will be no legal tangles later.
Let’s take a look at how lenders view joint home loans when different people apply together:
- Husband and Wife
This is the easiest way to get a joint home loan. In the case of married couples, if one of them dies, the other is considered the legal heir. Hence, there are no joint ownership issues. Lenders are more likely to sanction a joint home loan when a married couple, who are co-owners of property, apply together.
- Parents and Son
When a parent and a son jointly apply for a home loan, the lender first checks if both of them are co-owners of the property. If the son is an only child, then the lender goes ahead and sanctions the loan. This is because, since there are no other siblings, lenders assume that there won’t be any inheritance or succession disputes.
What happens if the son is not the only child?
There are two possible scenarios:
- The son is the sole owner of the property. In this case, the lender will sanction the joint home loan, as the parent is pitching in to increase the loan eligibility.
- If the property is co-owned by all siblings, or the parent and son, then the lender will generally not sanction the joint loan, as there can be inheritance disputes between the siblings.
- Parent and Daughter
- In the case of married women, most lenders do not sanction joint home loans with the parent of the woman. This is because the legal heir of the married woman is her husband and her siblings have the right to the father’s property.
- In the case of unmarried women, they treat the joint home loan application as they would treat a If the daughter is the sole owner of the property, she can apply for a joint home loan with her parents.
- Brothers as Co-applicants
This combination for a joint home loan is allowed only on an individual case by case basis. Two brothers can be joint loan applicants, only if they have the same residential address during the time of loan application. They should also continue to reside in the new property for which they are applying for a loan. Brothers must be co-owners of the property to be eligible for joint home loans.
- Brothers and Sisters as Co-applicants
In this case, lenders do not approve joint home loans due to the inheritance and succession laws involved.
*Note: Lenders can sometimes deviate from the terms mentioned above. In such cases, the joint applicants will have to provide extra paperwork to assure the lender that there won’t be any inheritance or succession troubles later on. So, it’s a good idea to check with your preferred lender to discuss your joint home loan scenario, and see if it’s feasible.
Joint home loans are definitely a great way to reduce the loan burden. However, you have to be really cautious while applying for a joint home loan. Make sure that you know your co-applicant well, discuss all the possibilities of the loan with him/her and make an informed decision.