® 
Abha and Rajesh are a working couple based out of Mumbai and were on the lookout for a house to buy. Their workplaces were close to the Central Business District, hence they preferred an apartment close by. After a lot of searching and research around the area, they found an apartment costing Rs 95lakhs with great amenities. The next step, Rajesh approached his bank for a home loan. But the couple was disappointed to learn that he did not qualify for the loan. So what is the best solution in these cases? Should the couple look for a property with a lower price tag or wait till they can close the car loan? These are the options available, however, they could also try going in for a joint home loan.
What is a Joint Home Loan?
Unlike other loans, home loans can be applied on a joint mode. By joint mode, we mean that more than one person could jointly apply for the loan. Rules allow up to 6 co-applicants for a home loan. However, all of them have to be co-owners of the property in question. But, when it comes to a married couple, a spouse can be a co-applicant to a home loan even without being a co-owner. Generally allowed co-applicants to a home loan are siblings, parents or spouse. Unmarried couples, female relatives like sisters, friends or business partners cannot qualify as co-applicants.
Additional Reading: Tax benefits on home loans
How Does Having A Co-Applicant Help?
Increase Borrowing Capacity
When you have co-applicants to a home loan, the combined income of all the applicants is taken into account in calculating the eligibility of a loan. Here, in this case, Rajesh didn’t qualify for a Rs 76 lakh loan (after taking into account 20% down payment amount) on a standalone basis. However, as Abha joins in as the co-applicant for the loan, their joint income will be considered which could make the couple eligible for the home loan.
By going in for a joint home loan a couple can go in for bigger ticket home loans and need not cut corners while buying a home.
Adding a co-applicant also helps when the credit score of one of the primary applicant is low and the other applicants have better scores. In this way the bank is able to gain confidence about the joint credit worthiness of the borrowers.
Benefit from lesser interest rates
Many banks offer a reduced rate of interest for women borrowers. This privilege is extended to joint home loans as well when the primary applicant is a woman.
Avail Income Tax Benefits
Tax rebates are one of the biggest benefits of availing a joint home loan. Section 80C of IT act allows for a rebate of up to 1.5 lakh on principal repayment and Sec 24 allows a rebate of 2.0 lakh on interest payment of housing of a self-occupied property.
When it is a joint loan and both the spouses are equal owners, both the co-borrowers i.e., husband and wife can claim Rs 1.5 lakh and Rs 2.0 lakh respectively for principal and interest repayment individually. However, keep in mind that to avail income tax benefits, both the spouses have to be co-owners and repayment for the loan should be done by both of you in proportion to your ownership ratio.
Let us use an illustration to see how the benefits work
Assume the husband earns Rs 10,00,000 and the wife earns Rs 800000 per annum. They pay Rs 1,50,000 towards principal repayment and Rs 6,50,000 towards interest payment for the above-mentioned property. The tax payable before and after joint home loans is illustrated below. Income Tax rates for FY 2017-18 are considered for calculation
|
|
Husband |
Wife |
Total Tax liability |
|
Tax Liability(Before loan) |
1,15,875 |
74,675 |
1,90,550 |
|
Tax liability (Single borrowing) |
43,775 |
74,675 |
1,18,450 |
|
Tax Liability (Joint borrowing) |
59,225 |
18,025 |
77,250 |
|
Savings in tax due to joint home loan |
|
|
39200 |
It is assumed that the couple have equal ownership over the house
Key Takeaway
Joint home loans come across as an effective tool when it comes to managing the burden of a home loan. However, to avail any home loan the basic requirement is having a good credit score. Check your credit score here.