Nikhil, a middle-class Indian, had been planning to buy a home in Mumbai. Since he did not have sufficient funds to purchase a large house, he went to the bank to apply for an individual loan. Upon seeing his financial statement, the bank did not grant him the loan due to his inadequate income. He had applied for a loan amount of 60 Lakhs but the bank only agreed to offer a loan amount of 40 Lakhs. As Nikhil did not have any other means to arrange the additional 20 lakhs, the bank suggested him to go for a joint home loan. Since his wife was also working, it was very easy for him to get a joint home loan.
However, this is not the only factor that has to be considered while going for a joint loan as there are several other reasons too.
- You can get large amount in joint loans which may not be the case in an individual loan.
- Even if you are eligible for an individual loan, you can still go for joint loan for tax benefits.
- If your credit score is bad, going for a joint home loan can be your best bet.
- You can also get reduced rate of interest in case you are taking a joint loan with your wife as women are generally offered less rate of returns for a home loan.
- For reducing the EMI burden and overall cost of the home loan.
Similarly, there are a lot of middle-class Indians like Nikhil who are not able to fulfill their lifelong dream of owning a house as properties in big cities are very expensive and they don’t have the financial capacity or good credit score to meet the eligibility criteria for the loan.
If you are also struggling to get a loan for buying your dream house. Instead of going for a single home loan, you should take a joint home loan as it allows large amount of home loans, more tax benefits and the sharing of loan repayment burden between you and the co-applicants who have applied jointly for the loan.
Joint Home Loans – Eligibility
Joint home loans can be taken by a maximum of 6 applicants (also known as co-borrowers) provided that they are blood-related family members such as your spouse, parents, and siblings.
However, it’s extremely important to know the difference between a co-borrower, co-owner and a co-applicant before taking a joint loan. A co-owner is basically the joint owner of the house whereas a co-applicant may or may not be a joint owner. Normally, the terms co-applicant and co-borrower are interchangeable.
Although it’s compulsory for all the co-owners to be the co-applicants of the joint loan but the opposite is not true as there’s no compulsion for co-applicants to be the co-owners of the property. To understand why joint loans are considered more advantageous, let us take a look at the major financial benefits of applying for the same.
Financial Benefits of Joint Home Loan
Higher Loan Amount
Banks analyse the credit report and financial capacity of a person as a criterion for eligibility before granting a loan. If a person’s credit score and income is not sufficient, his/her loan application is rejected by the bank. Taking a joint loan increases home eligibility incomes and financial capacity of the applicants are considered together/simultaneously by the bank. Taking all that into account, the applicants become eligible for a higher loan amount. Let’s make it simpler by taking an example.
- Nikhil, a software engineer, is married to Geeta who works in the IT sector. Nikhil had applied for a single home loan so that he could buy his dream home. Due to low income, the bank refused to offer the loan amount that he was seeking. So, Nikhil and Geeta decided to take a joint loan. Since both of them are earning, the bank combined their incomes while examining their financial capacity and declared them eligible for the joint home loan. As a result, they were able to get a higher loan amount which made it possible for them to buy a bigger home in their favourite location.
Joint Home Loan Tax Benefits
As per section 80c and section 24b of the income tax act, loan takers can enjoy a maximum tax deduction of 1,50,000 on principle repayments and 2,00,000 on home loan interest for a self-occupied property.
In case of joint home loans, tax benefits increase as they can be claimed separately by co-applicants. This is on the condition that they’re the co-owners of the house who share the collective responsibility of loan repayment. Since the tax benefits are increased, it decreases the overall cost of the loan for the family. Let us employ an example to help you understand better.
- Nikhil and his wife Geeta are both earning. The married couple took a joint home loan for purchasing a house in Mumbai provided that they’ve equal share in the property (50:50). Since they took the loan jointly, their tax benefits are doubled which means that they can avail a total tax deduction of 3,00,000 on principal repayments and 4,00,000 on home loan interest. Therefore, they can enjoy a total tax deduction of 700,000.
Reduced Rate of interest if women is a co-applicant
Another major financial benefit of joint home loans is reduced financial burden if the primary co-applicant is a woman. A lot of banks like HDFC, SBI, and ICICI give joint home loans to women at lower interest rates.
Reduced burden of EMI
In joint home loans, the burden of EMI reduces as the responsibility is shared by all the co-applicants. Hence, the sharing of responsibility makes loan repayment much more convenient and easier for the borrowers. Here’s an example to explain the concept of reduced burden EMI.
- Nikhil and his brother Rahul are both working. Rahul had applied for a regular loan to buy a house in Mumbai but the EMI was very high. On this account, Rahul and Nikhil opted for a joint loan as both of them were earning. The brothers decided to share the burden of EMI by contributing equally in the ratio of 50:50.
When it comes to taking a loan for purchasing your dream home, you should never rush with the decision as it’s a once-in-a-lifetime investment. While it is true that joint loans can be easily taken on the basis of collective financial capacity, the benefits such as increased home eligibility and tax deductions can be availed only if the co-applicants have a separate source of income. Keeping that aside you should avoid applying for a joint loan in the following situations.
- You are eligible for a single home loan.
- You are already making the repayment for an ongoing loan.
- Your credit scores are bad.
- Your retirement is going to happen soon.
- You are buying the property just for investment purposes and plan to purchase a bigger home in the near future.
- You are a co-applicant but not a joint owner of the house.
So if you are planning to take a joint loan, you must understand that it’s a big responsibility. Therefore, give it a deep thought before making such a serious financial commitment.
Let us try to answer some of the questions related to joint home loans
Can home loan be taken jointly?
Yes, you can take a home loan jointly with an immediate family member such as spouse, father, brother. Besides that, joint loan can be taken by a maximum of 6 applicants.
Can two friends take a joint home loan?
No, two friends cannot take a joint home loan as banks in India don’t allow that. You can only take a joint loan with your family members.
Is taking joint home loan beneficial?
Taking home loan is beneficial only if you are unable to opt for a single home loan. Additionally, the co-applicants should be earning or else you will not be able to enjoy the tax benefits.
Can I take joint home loan with my brother?
Yes, you can take a joint home loan with your brother on the condition that you both are co-owners .
Can a brother and sister buy a house?
No, banks don’t allow a brother and sister to take a joint loan for buying a house.
Can a father and son buy a house together?
Yes, a father and son can buy a house together by taking a joint loan provided that the applicant is the only son in the family and has no brothers. Additionally, banks also consider the income and age of the father to see whether he is eligible for being a co-owner or not.
Do joint accounts affect credit score?
Yes, if your co-applicant fails to payback for the loan, you will have to make the repayment all by yourself. If you are not able to make the payment on time, it will have a negative impact on your credit score.
Can you get a joint loan without being married?
No, unmarried couples cannot opt for joint loans. In order to take a joint loan, you should have the marriage certificate.
Can one person take out a mortgage on a jointly owned property?
No, one cannot take out a mortgage on a jointly owned property without the consent of the co-applicants.