A Home Loan involves borrowing a large sum of money from a bank to purchase a house. Since this process typically requires borrowing a substantial amount, you might not be eligible for a loan if you're applying alone.
In such cases, banks often recommend having a co-applicant to strengthen your loan application and increase the chances of approval. Let's delve into how this works.
Who is a co-applicant when taking a home loan?
A co-applicant is an individual who applies for a home loan along with you. A co-applicant shares the responsibility of repaying the loan with the primary borrower.
Many banks require all property co-owners also to be co-applicants for the home loan. However, not all co-applicants need to be co-owners. Having a co-applicant can increase the chances of meeting the loan eligibility criteria for the primary borrower.
Who can be a co-applicant for a home loan, and what do they do?
Having a co-applicant in a home loan means your home ownership journey just got easier. The standard terms for becoming a co-applicant for most banks are as follows:
- To avail of a home loan, the co-applicant's age limit is between 18 and 65 years.
- Couples are preferred as co-applicants for a home loan. Banks assess the combined income of both spouses to determine loan eligibility and approval. The home loan eligibility with a co-applicant improves if their combined income can pay back the loan on time.
- A father and son can jointly apply for a home loan.
- A single daughter may also be considered as a co-applicant for a home loan, either with both parents or a single parent.
- A brother may serve as a co-applicant for a home loan if he resides with the primary applicant and plans to continue doing so in the new property. But, if a brother is the primary applicant, he cannot select his sister as a co-applicant. Similarly, a female applicant cannot designate her sister as a co-applicant.
- Minors cannot be co-applicants for a home loan.
If the primary applicant fails to repay the loan, passes away, or declines to fulfil the agreement, the co-applicant assumes full responsibility for the loan. Regardless of any prior agreements, the bank will pursue repayment from either applicant.
From a technical standpoint, a co-applicant essentially becomes a co-borrower, sharing equal responsibility for loan repayment and other obligations. If the borrower defaults on the loan, the co-applicant becomes equally liable for repayment.
Benefits of Co-applicant in Home Loan
There are several advantages to having a co-applicant, particularly when applying for a home loan:
- Increased chances of approval: When both co-applicants have a good credit score and stable income, the chances of loan approval are higher.
- Lower interest rates: Home loan providers offer reduced interest rates to financially stable co-applicants with strong credit scores.
- Tax benefits: Co-applicants who are co-owners of the home can take advantage of combined tax benefits.
- Enhanced creditworthiness: Co-applying for a home loan can improve the creditworthiness of both applicants.
Co-Applicants vs. Co-Signers
In a joint home loan, the co-applicant is responsible for equally paying the EMIs based on the applicable home loan interest rates. However, a co-signer must only pay if the borrower defaults on payments.
A co-applicant shares the financial obligation of making loan repayments and also contributes to the loan application process. Co-applicants are involved when their income or creditworthiness is needed to strengthen the primary borrower's application.
On the other hand, a co-signer acts as a guarantor for the loan. While they do not have a direct stake in the property or loan agreement, they are legally responsible for repaying the loan if the primary borrower defaults.
Unlike co-applicants, co-signers do not typically have ownership rights to the property and are not involved in the day-to-day management of the loan. However, they are equally liable for loan repayments and may face legal action or damage to their credit score if payments are not made as agreed.
Also Read: Ways to choose the right Home Loan for your needs
Conclusion
Having a co-applicant can boost the amount of loan funds you are eligible for, making it a prudent choice if you're considering a big loan. Many banks don’t recommend going for a home loan without a co-applicant. But if all you need is to demonstrate a solid credit history to reassure the lender, having a co-signer will also meet this requirement.
Apply for a Loan with your co-applicant today at Axis Bank.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
