The benefits of a joint home loan are many. It provides borrowers with an opportunity to combine their respective credit taking capabilities and afford a home that might not have been possible, if only one of them had to finance the purchase. However, a situation may also arise, where one of the co-applicants may want to quit the joint home loan arrangement. This may happen, in case of a divorce between the spouses, the passing away of a parent, a dispute between brothers, etc. Let us explore the options available to the co-applicant who wants to get out of the joint home loan and how he/she should prepare for that.
See also: Should you opt for a joint home loan?
Who is a co-applicant?
A co-applicant is an individual who applies for a home loan alongside the primary borrower, sharing the responsibility of repayment. This means both parties are equally accountable for timely payments and any potential defaults. To qualify as a co-applicant, one must have a stable income and a good credit history. In case of a loan default, the lender holds both the primary borrower and the co-applicant legally responsible. There may be situations where removing a co-applicant becomes necessary, such as in cases of separation or the co-applicant’s passing.
See also: Impact of divorce on a property under joint ownership
Can a co-applicant be removed from a joint home loan?
A co-applicant can be removed from a home loan, but the process requires mutual agreement between the primary borrower and the co-applicant. Additionally, lenders may have specific criteria or conditions that must be met before approving the removal.
How to remove a co-applicant from a joint home loan?
To remove a co-applicant from a home loan, borrowers must go through a process called novation. This legal procedure allows for the replacement of one party in a contract, meaning the co-applicant can either be replaced by another person or the primary applicant can take sole responsibility for the loan. However, before proceeding, it is essential to review the loan agreement, as some lenders may have restrictions or require consent from all involved parties.
To initiate a novation request, the borrower must submit specific documents, such as a formal written request, a copy of the original loan agreement, and any other paperwork required by the lender. A valid reason for the request—such as a change in marital status or financial circumstances—must also be provided.
If a new co-applicant is being added, they must meet the lender’s eligibility criteria. If the primary applicant wishes to take full responsibility for the loan, they must demonstrate financial capability to manage repayments independently.
Once the request and necessary documents are submitted, the lender will assess the application and may ask for additional information. If approved, a revised loan agreement will be issued to reflect the changes.
Eligibility for removing a co-applicant from a joint home loan
To remove a co-applicant from a home loan, you must demonstrate your financial ability to repay the loan independently. Lenders typically require documents such as asset details, proof of income, and a strong credit score. You may need to submit bank statements, salary slips, and other financial records to show sufficient income. Additionally, lenders might ask for a valid reason for the co-applicant’s removal, such as their financial difficulties. In such cases, supporting documents like their credit report or salary records may be required.
If you plan to add a new co-applicant, this is the stage to include them in the loan documentation. If you struggle to meet the lender’s eligibility criteria for removing the co-applicant, you can try negotiating. Some lenders may consider the request if you present a compelling reason and prove your ability to manage repayments alone. If the process seems unclear, consulting a financial advisor or legal expert can provide valuable guidance.
Documents required for removing a co-applicant from a joint home loan
The sole/remaining borrower will have to submit several documents afresh – past one year’s bank statement, tax returns, salary documents, etc. – for the bank to process the request. The bank may also ask the applicant opting out to sign a ‘quitclaim deed’, to forgo his ownership in the property title.
See also: How to claim tax benefits on joint home loans
What if the bank does not allow removal of co-applicant from the joint home loan?
There are two things you can do if your bank refuses to allow the removal of a co-applicant from your joint home loan:
Approach a new lender
If your bank does not offer the facility of allowing a co-borrower to exit the home loan, you may have to approach a new lender, who may be willing to refinance the loan in the name of one applicant only. This process will involve additional costs. Moreover, in such a precarious situation, the bank may resort to hard bargaining and charge extra interest on the home loan than the prevalent market rate. You may also have to pay additional costs to your old lender to close the loan, apart from making several visits to your home branch.
Sell the property
If none of these scenarios are feasible for the co-applicants, then, they will ultimately have to sell the property and divide the profit, as per the terms and conditions pertaining to their share, as mentioned in the sale deed. This option too is fraught with a lot of paperwork and will be time consuming. One may have to resort to this option, if the sole remaining applicant does not have a good credit score or sufficient monthly salary to service the loan.
Housing.com POV
Exiting a joint home loan can be challenging, but it is possible with careful planning and lender approval. Whether through novation, refinancing, or selling the property, each option comes with its own financial and legal implications. The key is to demonstrate financial stability and provide the necessary documentation to support the request. If the lender does not permit the removal of a co-applicant, exploring alternative lenders or selling the property may be the only viable solutions. Since the process can be complex, seeking professional financial or legal advice can help navigate the situation effectively and ensure a smooth transition.
FAQs
Can joint applicants move out of the home loan?
Yes, some banks offer this facility.
Do I have to give up ownership of the property, if I leave a joint home loan?
Banks may ask the co-applicant who wants to opt out, to sign a quitclaim deed as well, to forgo his ownership over the property title.