Co-applicant in home loan – Meaning, eligibility, benefits & key rules

A home loan allows you to buy your dream house even if you do not have the requisite funds up front. But what if your income alone is not enough to qualify for the desired loan amount? Or your eligibility falls short of what you need? This is where adding a co-applicant in a home loan can make a difference.

Many borrowers choose to enhance their home loan eligibility with a co-applicant. They can strengthen your overall financial profile and can even increase the loan amount you can avail of.

However, there are specific rules, responsibilities, and conditions attached to a co-applicant in a home loan. In this blog, you will explore what a co-applicant in a home loan means, what the eligibility criteria are, and what documents are required to add someone as a co-applicant. You will also learn the process and benefits of doing so. Keep reading.

What is a co-applicant for a home loan?

A co-applicant is a person who jointly applies for a home loan along with the primary borrower. Both the applicant and the co-applicant share the legal and financial responsibility of repaying the loan amount. In the case of default, both individuals are held liable.

Adding a co-applicant improves the chances of meeting the lender’s eligibility criteria for the primary borrower. It’s because the lender also considers the co-applicant’s income, credit profile, and financial details while making the final decision.

Many lending institutions require all property co-owners to be co-applicants in a home loan. However, not all co-applicants need to be co-owners.

Who can be a co-applicant for a home loan?

A co-applicant in a home loan is usually someone closely related to the primary borrower. Most lenders allow immediate family members to be added as co-applicants. Common relationships that meet the co-applicant eligibility for a home loan include spouses, parents, siblings, and earning children. Friends and distant relatives are usually not allowed to become co-applicants.

However, the final decision depends on the lender’s policies. Each bank or NBFC may have specific home loan co-applicant rules regarding who can be added. For example, some lenders do not allow married daughters or sisters to be added as home loan co-applicants.

Eligibility criteria for a home loan co-applicant

Apart from being an immediate family member, a person must meet the following eligibility criteria to become a home loan co-applicant:

• They must be an Indian citizen.
• Their age should be between 18 and 65 years.
• They must have a stable income, either from an employer or a business.
• A credit score of 700 or more is essential for approval.
• May or may not be the co-owner of the property.

Note that these parameters are not fixed. The co-applicant in home loan eligibility criteria may vary across lenders.

Example of a co-applicant in a home loan

Consider a simple example to understand how a co-applicant in a home loan works. Rahul is an IT professional earning Rs. 60,000 per month. He applied for a home loan alone to buy a flat worth Rs. 40 lakhs. However, the lender sanctioned a maximum loan amount of Rs. 20 lakhs based on his income. This meant he had to pay the remaining Rs. 20 lakhs out of his own pocket.

That was when his wife, who earned Rs. 50,000 per month, joined him as a co-applicant on the home loan. Their combined income became Rs. 1.1 lakh per month, and Rahul qualified for a much higher loan amount.

Co-applicant vs co-signer: Key differences explained

Borrowers often get confused between co-applicants and co-signers in home loans. They both support the loan, but their roles are different. A co-applicant is actively involved in the loan repayment, while a co-signer mainly provides backup support.

Roles and responsibilities of a co-applicant

• A co-applicant shares the responsibility of paying the loan EMIs jointly with the primary borrower.
• A co-applicant may or may not be the co-owner of the property.
• Lenders consider a co-applicant’s income and credit score while determining home loan eligibility.
• Missed or delayed EMIs can hamper a co-applicant’s credit score.
• A co-applicant must sign all loan-related documents, including the loan agreement.

Role of a co-signer in a home loan

• A co-signer acts as a guarantor and has limited involvement in day-to-day loan management.
• They are responsible for loan repayment only if the primary borrower defaults.
• Their income is usually not considered while determining loan eligibility.
• A co-signer does not have any ownership rights on the property.
• Missed or delayed EMIs do not impact a co-signer’s credit score. However, loan defaults have a negative impact.

Also Read- Difference between a co-borrower, co-owner, co-signer, and co-applicant

Benefits of adding a co-applicant to your home loan

Adding a co-applicant to a home loan can strengthen your loan application and improve your chances of approval. It also helps you qualify for a higher loan amount. In some cases, adding a co-applicant can lead to increased tax savings and financial perks. Explained below are the key benefits one by one:

Higher loan eligibility and increased borrowing capacity

One of the biggest benefits is that you can increase your home loan eligibility with a co-applicant. Lenders consider the combined income of both applicants while assessing repayment capacity. A stronger financial profile reduces risk for the lender, which in turn can improve approval chances and help you qualify for better loan terms. It can even lead to an increased borrowing capacity, with lenders sanctioning higher loan amounts.

Shared EMI responsibility

With a co-applicant, the loan repayment burden is shared between both borrowers. It makes EMIs more manageable and improves overall long-term affordability. It also helps in better financial planning, as both individuals contribute towards the loan. Sharing the responsibility reduces the strain on a single income and ensures smoother repayment over time.

Tax benefits for joint home loan applicants

Home loan co-applicants who are also co-owners of the property can claim double tax benefits under Sections 80C and 24(B) of the Income Tax Act. Section 80C allows tax deductions on principal repayment, while Section 24(B) covers interest repayments. Each co-applicant can claim these benefits individually, subject to specified limits. However, they must both contribute to loan repayment and be co-owners of the property.

Stamp duty benefits with a female co-applicant

In many states, stamp duty charges are lower if the property is registered in the name of a female co-owner. Thus, adding a woman as a co-applicant and co-owner can help reduce overall property registration costs. The discount may vary by state, but it can lead to noticeable savings. Adding women as co-applicants also encourages joint home ownership and better financial planning within families.

Also Read-  What Happens When a Home Loan Borrower Passes Away

Documents required for a home loan co-applicant

Just like the primary borrower, a co-applicant must also submit a few basic documents at the time of the loan application. These documents help the lender verify the co-applicant’s identity, income, eligibility, and overall repayment capacity.

Typically, the co-applicant in home loan documents include:

• KYC documents: PAN card, Aadhaar card, Voter’s ID card, Passport, etc.
• Income proof: Salary slips or Income Tax Returns (ITRs).
• Property documents: Required if a co-applicant is also a co-owner.
• Six-month bank statements.

Please note that this list is indicative. The lender may ask for additional documents at the time of loan processing.

How to add a co-applicant to a home loan application?

You can add a co-applicant to your home loan application through a straightforward process. Below are the steps you need to follow:

Choose the co-applicant

Select an eligible family member to become a co-applicant in your home loan. They can be your spouse, parent, sibling, or earning children.

Fill out a joint application form

Proceed to fill out a joint home loan application on the lender’s website. Mention the details of both applicants correctly.

Submit the required documents

Upload the required documents of both applicants. Ensure the documents are accurate and complete.

Wait for the lender verification

The lender checks the income, credit scores, and eligibility of both applicants before sanctioning a loan.

Important points to consider before choosing a co-applicant

A co-applicant plays an important role in your loan repayment journey. That is why you must choose a co-applicant for your home loan wisely. Here are a few points you can consider when making a choice:

• Ensure a strong and reliable relationship to avoid future conflicts.
• Evaluate the co-applicant’s income stability and creditworthiness.
• Define ownership percentage and EMI contribution clearly.
• Use a home loan eligibility calculator with a co-applicant to estimate your total borrowing capacity in advance.
• Ensure that both applicants understand the legal and financial obligations of a joint home loan application.

Choosing the right co-applicant can significantly improve your chances of loan approval. However, it also entails certain financial responsibilities and legal repercussions. You must analyze your options carefully and make a well-informed decision.