There is a big misconception that a joint home loan is applied by the married couple. Generally, it may not be known but ownership of home loan can be applied, and is actually in practice, by others as well. Parents, siblings, friends, non-married couples, business associates can also apply for the loan as a co-applicant.
Owning a house is a big leap and generally the home loan interest rate is the major factor that the borrowers consider. While interest component is an important consideration since it directly impacts the EMI amount, however, there are four other critical factors that one needs to take into account before signing as a joint loan holder.
Co-signing a home loan application comes with a lot of liabilities and you need to be completely clear on the obligations before taking the plunge.
One needs to have a clear understanding that despite the EMI not hitting your account, the ownership of timely repayment is as much your liability as would be for the primary applicant. Just in case the primary applicant is not able to meet the obligation, you would be liable to repay the housing finance company. Despite having a lower ownership of the property, you would have the responsibility of repayment of the complete outstanding amount. To further clarify, you may have 30% ownership of the property on paper, but have ownership of 100% of the loan outstanding.
Each loan that you sign on gets reported to the credit bureaus. So will be the case with the joint home loan as well. It will have two way impact on your credit profile. First, it will impact your debt to burden ratio. The EMI of loan will get apportioned into your eligibility and may restrict your borrowing capability.
Be cognizant of the fact non repayment of the loan installments will result in spoiling your credit health as well and lead to the low CIBIL score.
You must first have clarity on the need for being a co-applicant in a property. While in case of married couples the largest reason would be end use, it could be a business requirement or an investment in case of other joint applications.
While the life partners go through the thick and thin and endure financial cycles together, that may not be the case in other situations. You would need to be very clear and document the responsibilities of repayment including the measures to be taken in case of default.
As mentioned above, the ownership may be limited to a certain percentage, but the liability to repay up to complete outstanding is obligatory. In this situation, you may have a clause of change of the ownership ratio in case the repayment pattern change. It will only be prudent to engage a legal expert on this and to have a clause on this incorporated in the agreement.
The home loan repayments come with tax benefits. All joint holders are entitled to benefits under section 80C and section 24 of the income tax act. This permits them to avail deductions from the income and from the investments to be made for tax deductions. Loan entitles for a claim of up to 2L on the interest paid every year and up to 1.5L on repayment of the principal amount of loan. These tax deductions are available only after the construction of house is complete.
So if you are wanting to be a joint holder of the loan please do your homework correctly before signing above that dotted line.
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