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Should you add a co-applicant to your home loan application?

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There can be several reasons why a lender might reject your home loan application. However, if your application was rejected due to inadequate income, low credit score or high debt-to-income ratio, add a co-applicant next time you apply for a home loan.

Let’s read how adding a co-applicant in your home loan application can be beneficial for you:

Benefits of adding a co-applicant to your home loan application

Higher Home Loan Eligibility

Lenders evaluate home loan applications against several factors, some of them being the applicant’s income, credit score and repayment capacity. Thus, adding an earning family member with a good credit score, stable income and sufficient loan repayment capacity as a co-applicant can help in improving the loan eligibility. As co-applicants are also accountable for loan repayment, looping in such co-applicant(s) will reduce the credit risk for lenders and thereby, increase the home loan eligibility. However, note that any delay or default in the repayment of home loan would adversely affect the credit score of both primary borrower and co-borrower(s).

Higher Loan Amount

Lenders usually prefer offering home loans to applicants whose total EMI obligations are within 50%-60% of their net monthly income. As lenders consider the income and obligations of both primary applicant and co-applicant(s) when calculating the repayment capacity, those exceeding the aforementioned limit can increase their eligibility for a higher loan amount by adding an earning family member as co-applicant(s).

Lenders usually require borrowers to repay home loans until they are 70 years of age. Therefore, home loan applicants nearing their retirement age are usually offered shorter loan tenures, which results in higher EMIs. In such cases, adding a younger earning member of the family as co-applicant may help borrowers in availing home loans with longer tenure.

Tax Benefit for both Applicant and Co-applicant(s)

In case of joint home loans, both primary applicant and co-applicant(s) can avail income tax benefits individually on the loan’s principal repayment as well as interest payment. As per Section 24 (b) of the Income Tax Act, home loan borrowers can claim tax deduction of up to Rs 2 lakh on the interest amount paid in that financial year. So, if a couple applies for a joint home loan, together they can claim Rs 4 lakh as a tax deduction, i.e., Rs 2 lakh each. However, the total amount claimed by the primary applicant and co-applicant(s) cannot be more than the actual interest paid to the lender.

Similarly, under Section 80 C, the primary applicant and co-applicant(s), individually, can claim tax deduction of up to Rs. 1.5 lakh on their home loan principal repayment, leading to a total tax benefit of Rs 3 lakh. Here too, the total amount claimed by the applicant and co-applicant(s) cannot be more than the actual principal amount repaid to the bank.

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Lower Interest Rates for Female Borrowers

To encourage home ownership among women, many banks and HFCs offer concessions on their home loan interest rates to their women applicants. The interest rate concession offered is usually of 0.05%, which despite being a small percentage can lead to significant savings on the overall interest cost for the borrowers.

Who can be a co-applicant?

Home loan applicants can add family members as co-applicants. However, the qualifying relationships for availing a joint home loan can vary across lenders. Also, it is mandatory for all co-owners of the property to be co-borrowers of the home loan. However, it is not mandatory for all co-applicants to be co-owners of the property.

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