Nine things to consider before taking a joint home loan

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If you are planning to take a home loan, opting for a joint loan may reduce financial burden. A joint home loan will not only help you to share the EMI, but also allow you to borrow a higher amount as the income of co-borrower is also factored-in.

Who can be a co-borrower?

“Joint home loans can be obtained by an applicant along with earning member of the family that includes his/her spouse, parents or own siblings. In some cases, brothers can also take joint loans. Classically one does not have more than 2-3 joint borrowers at one point in time,” explained Satyam Kumar, CEO of Loantap.

Here are nine things you must consider before taking a home loan

Responsibility of the co-applicant

A co-applicant is a person who applies along with the primary applicant for a joint loan. The co-applicant is 100% responsible for the loan if the partner defaults or is not able to repay it under any circumstances.

Loan eligibility

A bank prefers EMIs to be 40%–45% of the applicant’s monthly income in order to qualify for loans. A joint loan application increases the amount of money you can borrow by almost twofold, provided the co-applicant has a steady source of income.

Buy an Insurance

According to certified financial planner Kalpesh Ashar, “both partners should have sufficient Insurance through a term plan. It supports the other in case anyone dies. Otherwise, the liability of the deceased person would come on one. They can also take individual life insurance.”

Updated documents

A joint loan requires both the applicants to furnish the necessary KYC (know your customer) documents, bank statements, employment certificate, and income tax returns. Ensure that you have the most updated copies of these documents ready with you.

Check the credit history of both borrowers

Review your credit scores before applying for the joint loan to understand your credit history.  Ensure credit history is free of defaults and the credit score is high. In case of any issues with the credit score of even one person, your loan may get rejected.

Down-payment

The down payment should be determined based on the applicant’s savings. Banks usually require down payments of between 10 to 30 percent of the property’s value, depending on their policies. Due to the higher loan amount, buyers should not go overboard with their budget.

Avail tax benefits

In the case of a joint loan, co-borrowers need to be co-owners as well to avail of tax benefits on the home loan. Here, you can claim deductions of up to Rs 1.5 lakh under Section 80C. Further, you can save tax on the amount paid for stamp duty and registration.

Allocating share for EMI

One of the biggest benefits of a joint loan is that the responsibility of repaying the credit is equal between the primary as well as the secondary borrower, irrespective of the ratio or nature of ownership of the property.

Consequences in case of default

Both applicants are equally liable for the home loan. If one applicant stops paying EMI, the impact is felt by the other applicant. The other one will have to make up for the deficit or they will default on the home loan. Both applicants’ credit scores and histories will be negatively affected even if one defaults.