Unfortunately, she has realised that it is nearly impossible for her to pay the full price of the 2-bedroom house of her choice. Either she will have to part with a massive amount of savings or will need to resell an existing property to be able to afford that house. She has a decent credit score. Her banker friend suggests she opt for a joint home loan with her older brother—a successful lawyer—also living in the same city. Priya is confused and wants to understand if she should follow her friend’s advice to fulfil her dream.
As the name implies, a joint home loan is a loan that you take with another person, usually a spouse or a sibling. Priya can also opt for a joint home loan if she isn’t capable of repaying the full amount on her own. In other words, she is not eligible for a larger loan amount that she needs, to be able to afford a slightly expensive property. By dividing the loan’s burden with her family member through a joint home loan, the lender will believe that debt can be repaid easily. Her chances of getting a home loan at attractive interest rates are much higher in a joint home loan compared to the regular one. Her brother as a co-applicant can make it easier for her to get a bigger home loan only if his credit score is high and their joint income big enough to cover the EMIs.
Additionally, as per the income tax regulations, a joint home loan will allow both the co-borrowers (Priya and her brother) to claim tax benefits under Section 80C, in case both are co-owners also. They each can deduct up to Rs 2 lakh from the interest amount and Rs 1.5 lakh from the principal amount from their taxable incomes. This means that both she and her brother get to enjoy lower individual taxable incomes.
However, Priya must bear in mind that becoming a co-applicant will not only be for the sake of fulfilling a legal formality. It imposes legal and financial obligations too that both parties must fully understand. For instance, if her co-borrower (brother) is unable to pay the EMIs, it will affect her credit score as well. It might be easier for Priya to get a home loan with a co-applicant as compared to applying as a single borrower. However, fulfilling that pre-condition is no guarantee that her application will get approved. This is because home loans are highly risky for the lenders, despite the fact they are secured against the homes they are availed for.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)