A joint home loan lets you share the debt obligations with a co-borrower. You and your co-applicants will become responsible for paying installments of the debt you got for investment or any purpose. With this joint loan, you can quickly become eligible for a sizeable loan amount to meet the shortage in credit required for constructing your house. Besides this, a joint home loan has some upsides and downsides. You must be aware of those before taking the credit facility.
Following are some pros of this joint home loan:
Both applicants are responsible for repaying the borrowed amount in a joint home loan. Therefore, it reduces lenders’ risks. If one of the borrowers faces any financial problems causing difficulties in repaying, the lending institution can expect the other borrower to pay the installment. Due to this reduced risk, lenders sanction a high credit amount without hesitation.
For Joint home loan tax benefits, section 80C of the Indian Income Tax Act lets you get a tax deduction of up to Rs. 1.5 Lakhs on the principal amount you have paid through home loan installments. In addition, you get a tax deduction of up to Rs. 2 Lakhs on the interest paid through home loan installments. As a result, you can decrease your taxable income by up to 3.5 Lakhs in a financial year.
Similarly, when it is a joint home loan, you and the co-applicant get the benefits of a tax deduction of Rs. 3.5 Lakhs each. Together, both you and the co-borrower save Rs. 7 Lakhs. This is why you need to apply for a home loan with any of your family members. It will reduce the tax liability of your family.
While approving loan requests, financial institutions check the creditworthiness of their customers. They ensure that you meet their eligibility parameters, such as income, age, credit score, etc.
Lenders may not approve your loan requests if you fail to meet these standards. However, by applying with a co-borrower who meets every aspect of the eligibility parameters, you can qualify for a loan quickly.
Here are some cons of this joint home loan:
In a joint home loan, if your co-borrower fails to pay the installments due to financial issues, the entire responsibility for repayment falls upon you. You may also find it challenging to pay the installment amount solely. You can also face such a situation if your co-borrower dies.
Your credit score will reduce significantly for non-repayment of the installment due to any reason. It will hamper your creditworthiness, causing difficulties in getting approval on your loan requests.
You need to keep the following documents handy while applying for the joint home loan:
Here is a step-by-step process for applying for a housing loan with a co-borrower:
After this, you will get a call from a lending institution representative. They will guide you through the following procedures for obtaining the loan.
While opting for this credit facility, you need to consider the following pointers:
For a home loan, lending institutions provide a loan-to-value (LTV) ratio of around 80%. For an LTV of 80%, they will finance a maximum of 80% of the total construction cost of your house. You and your co-borrower will have to pay the rest of the construction cost as a down payment. However, this LTV ratio varies across lenders. If you have less money to make the down payment, ensure that the LTV of your lender is high.
If the interest rate is higher than the market average, your borrowing cost increases along with the EMI amount. Therefore, you need to compare the interest rate of different lenders while applying for a joint home loan. This way, you can choose a lending institution providing the credit facility at an affordable rate.
You must also ensure that the repayment period gives you an affordable installment amount. To know what tenure will be perfect for you and your co-applicant, use a home loan EMI calculator. Then, you just need to enter the interest rate, loan amount, and preferred repayment period in the input boxes. After this, you will have to change the repayment period’s value using the permutation and combination method to get to know the suitable tenure.
In conclusion, a joint home loan makes it easier to be eligible for substantial credit for house construction. Furthermore, since a joint loan is less risky for lending institutions, they approve it even if you have a low income or credit score.
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