Planning to buy a house with your partner? Answer these questions first

Are you buying a house with your spouse? Well, co-ownership of property is a fantastic idea economically but should be executed in the right way so as to document correctly each of the partner’s contributions. Also, one should be aware about the intricate details that will help save taxes. This guide focuses on points to capture your attention on while buying a property with your spouse.

To start with there should be a good amount of clarity that both partners should have so that they are able to achieve their aim of buying a house together. 

Clarity on ownership

In case of joint ownership, merely having the name of the partner is not enough- what is each one’s share of the property has to be explicitly defined in the sale deed. In case there is no ratio marked on the legal documents, it is by default considered that the husband and wife are equal owners (50:50) of the property.

Clarity on money paid by each partner

Even though the partners are family, it is a good practice to maintain records on who paid how much for the property. This should include how much each of the partner contributed for down payment, accounts from where the EMI will be cut in case of a joint home loan etc. These will help in filing income tax returns. Note that it’s a good idea that the finances paid complement the ownership share of the property. 

Clubbing of income in case of joint ownership 

In case one of the partners used his/her money to buy the property in the other spouse’s name, then the rent earned from the property will be the income of the person who has paid for the property and he/she only will also have to pay tax for it. The person in whose name the property has can’t claim the rent. However, note that this rule is not valid if both partners have taken a joint home loan and are co-owners of the property. This is also not true, if the property is bought using the partner’s savings and not from the spouse’s money. 

Questions to ask your partner before proceeding with property buying

• What will this home be- primary or for investment?

Understand what the home will be- primary use or for investment purposes. Based on that you can decide on what the budget of the house that you can afford. In case it is a property for primary use, then discuss on how many years you plan to stay there and in case the family increases, will the house you are considering be fine or will you need to upgrade.  

“We were living in a 1BHK in a standalone building and after kids we wanted to move into a gated community which came at a huge cost. While we were financially comfortable and bought a joint ownership property, we were very conscious in our home buying approach. We clearly demarked wants and needs and were on cost-cutting mode for over six to eight months so that the home buying process was smooth. In hindsight, this sacrifice for a smaller period was worth all the effort,” says Raghuraj Sharma and Prakyati Sharma, residents of Kharghar who moved to Nerul. 

Read also: How property buying decisions change after marriage or having kids?

• What is the down payment and EMIs that we can afford?

Buying a property is one of the single largest expenses in a person’s life and in case of a family, the entire unit will be impacted –either good or bad when a property is bought. Before even scouting for a property, a couple should be well aware of the financial situation in their family. A couple should take into consideration the monthly earnings, savings, monthly expenditure, miscellaneous and lifestyle oriented expenses etc. and then check on how much of down payment can be paid and how much EMI can be serviced every month. Note that when you buy a property you will not get a home loan on the entire property and may get only on 80% of the value of the property. The remaining 20% is the down payment that you may have to pay using your own means. 

• Are we eligible for such a home loan and what do our credit scores look like?

Understand if your salary allows you to take the home loan you desire. In case of joint ownership if both partners take home loan, then they would be eligible for a higher home loan as the total of their income will be considered. Credit scores also play a pivotal part in securing home loan. If the credit score is not good enough, one may find it very difficult to secure a home loan or may need to pay higher interest on the loan. 

• Do we want to take a joint loan or keep it in one person’s name?

You also have to discuss on what is more beneficial to your family –taking a joint home  loan or availing a loan on only one person’s name or buying a property without taking any home loan by utilising the savings. The answer to this query can be gauged by analysing current incomes of both partners, future earnings and career growth expected. 

• Should we take a home loan insurance?

As the name suggests, a home loan insurance provides cover for the home loan that a couple have availed for buying a joint property. In case the couple takes a heavy home loan for their property, it is recommended to explore if a home loan insurance will play a role. This is useful when in case of any monetary issue, the insurer may step in and pay. If you avail this, in addition to EMI you will also have to pay the premium for the insurance in addition to the monthly EMI. 

• How will the ownership share of the property be divided? 

It is healthy to have frank and clear conversation on how the property will be divided between the two partners. Since each partner contributes towards buying the property, it is only fair to discuss this query. This is also important in case of the partners opt to separate or divorce going forward. 

• Who will we turn to in case of crisis?

You can discuss with your partner if either of your parents can help financially in case of any crisis or need for monetary assistance. 

Advantages of buying a joint-ownership property with your spouse

Mentioned below are some of the advantages that a couple can avail in case of opting for a joint-ownership property. 

Joint home loan

To derive maximum advantage of buying a joint property with your spouse, both co-owners should opt for a joint-home loan.  As the bank takes into consideration the income of both partners, a couple is eligible for higher home loan. 

Thus, it is recommended to have both owner’s names in home loan agreement and the loan certificate. 

Income tax benefits

The main financial benefit of purchasing the property jointly is the possibility of both spouses claiming tax deductions separately. But that will be possible only when both are co-borrowers and co-owners who are paying back the loan amount. 

Under Section 80C of IT Act, a person can claim up to Rs 1, 50,000 and family co-borrowers of a joint property can claim up to Rs 3, 00,000. Under Section 24 (b), a person can claim up to Rs 2, 00,000 and family co-borrowers of a joint property can claim up to Rs 4, 00,000. Going by this calculation, a couple can avail a maximum tax deduction of around Rs 7 lakh altogether every financial year. 

Stamp duty is a compulsory tax that has to be paid to the government to register the property in the legal book of records. Many Indian states offer rebate on stamp duty and registration charges if the property is registered in the name of a woman or even when it’s a joint ownership between a man and a woman. Identify if the state you are looking for to buy a property provides this rebate. This will be a one-time significantly large savings on property cost. 

Easy succession

One of the biggest advantages of a joint property between spouses is succession is very easy. For instance, under tenancy by entirety co-ownership, the joint property will automatically be succeeded by the owner in case of death of one of the partners. This saves too much of paperwork and other procedures that may cause delay. 

Housing.com POV 

Buying a house with your spouse is one of the many happy things that you do when building your family. This gives both the partners a sense of equality in buying the property and security in owning it. Buying a house in joint ownership with your partner has a lot of benefits that one can avail of including tax benefits, home loan benefits and biggest of all easy succession, which generally in the absence of legal documents is very cumbersome, time and sometimes money taking.