Home loan co-applicant is a common phenomenon these days. Banks and other housing finance companies insist for a co-applicant in most of the cases. But the question of who can be the co-applicant keeps coming up. Does the co-applicant need to be the co-owner of the property as well. A simple answer to this is no. It is not necessary that the co-applicant also needs to have ownership into the property for which the loan is being sought. In case the property is jointly owned, all owners necessarily need to be the co-applicants as well. But in case of single ownership the borrower can produce a non joint owner as well as the co-applicant.
Who can be the co-applicant?
Generally, the blood relation like spouse, parent and siblings are acceptable as the co-applicant. Usually the banks do not accept friends or distant relatives to be a co-applicant.
Responsibilities of the co-applicant
The blood relation will agree to be the co-applicant and sign the form without thinking twice. But should be aware of the obligations that come along with it. A co-applicant shares the responsibility of repayment of the loan even though he has no right into the property. In the event of the primary borrower being incapable of repayment for any reason, the bank will demand the repayment of EMI from the co-applicant.
There are definite disadvantages of being a co-applicant in a home loan without having ownership in the property. Let us look at them.
Dispute between the spouses
Legally the wife is entitled to equal share in the property purchased by the husband after marriage. What about the liabilities on that property. Will she be entitled to pay up those as well. In the event of any dispute between the spouses where the husband stops the repayment of EMIs, the wife shall be fully liable to pay the EMIs even if there is no ownership in the property.
In the unfortunate event of husband’s death without a clear will, the succession law entitles the mother, child and wife to inherit the property. While the wife will have entitled to only one third of the value, the obligation of repayment of complete EMI will have to be borne by her. Inspite of having legal provisions to have the legal heirs to pay their share of EMI, the banks come after the co-applicant since making the heirs pay up will involve proceedings in court and that can be time consuming process.
Different beneficiary in will
What if the primary borrower has left a will that has different beneficiaries. In this case while the ownership of the property will be held by some one else, the co-applicant will have the legal binding on repayment of the loan.
Risk of losing other assets
This is another big disadvantage. In the event of inability of repayment of loan, the banks have the right to have the assets owned by the co-owner also attached for sale and recovery of the outstanding loan and other dues.
Reduced credit eligibility
The banks while calculating the eligibility of a borrower take all active loans into account. In case of a co-applicant on a home loan the eligibility can substantially reduce owing to high monthly instalments. For example the co-applicant wishes to apply for ICICI home loan, he might not be eligible for the amount that he wishes to take to buy a house for himself.
Impact on credit profile
In case the primary applicant stops to pay the EMIs the non payment will reflect on the CIBIL report of the co-applicant as well and would negatively impact the credit health. There are all chances that the co-applicant may not be able to get approval on another loan owing to impaired credit history reflecting on his bureau report.
No tax benefit
This is another aspect that all co-applicants without an ownership into the property must know. The tax benefit entitlement is available only to the borrowers with ownership in the property.
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