Joint home loans: Why you should avoid co-applicants

Banks view joint home loan applications favourably and there is a reason for that. Even though housing loans are secured loans, the fact that two people are legally obliged to service the loan, is a guaranteed way to ensure that the loan does not turn bad at any point in future. Consequently, financial institutions encourage borrowers to make their spouses as co-applicants in the home loan applications.

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A joint home loan means you could get a higher amount sanctioned.
Both the co-applicants can get tax benefits on their income.
It would reflect positively on the co-applicants’ credit history, etc.

While a joint home loan has some advantages, a buyer should not be swayed, without having a clear understanding about how joint home loans work.

A housing loan is a long-term commitment, where the loan tenure typically ranges between 15 and 30 years. Going solo in a home loan application, means you are the only one responsible for this entire obligation. Let us see the benefits of being the sole applicant in a home loan application.

Reasons why you should not co-apply for a home loan

Financial discipline

Suppose you like a home that costs Rs 2 crores but your bank is not willing to lend you more than Rs 85 lakhs, based on your income and other factors. It, however, tells you that it could increase the loan limit, if your wife jointly applies for the same. Opting for a joint loan in this situation may send your monetary discipline haywire. The best policy is to only depend on your personal capacity, to make the home purchase.

Full rights over the property

In most cases, the co-applicants are co-owners, as well. If things go wrong in future, such an arrangement would lead to legal and personal conflicts. Joint ownership could turn disastrous, if for example, the wife sues the husband over her share in the property, despite making no contribution in the property purchase. Conversely, if the husband stops paying the EMIs, the responsibility to service the loan falls on the wife, irrespective of her employment status.

Right to sell the property

In joint home loans, co-applicants have to consult each other, if they plan to sell the property during the loan term. Mere consultation would not be enough, if the two parties are also co-owners. They would have to agree on the sale on paper, as well. This restricts their individual freedom to deal with their joint assets. Someone who is serving the home loan all on his own, can take a call that suits them. They do not need anyone else’s permission to initiate a sale during the loan repayment period or after.

Scope for future credit

If only one member in the family is servicing a home loan, the other member is free from any debt. This gives the family the scope to apply for a new loan, if need be. For example, you may need to take a personal loan to meet an emergency or apply for an education loan. It makes little sense, if key earning members of the family exhaust their credit-taking capability, to meet one objective.

See also: Can you get out of a joint home loan?

Default does not affect others

In a joint home loan, both the parties are responsible, in case of a default. Opting for a home loan in a single name, ensures that your loved ones remain unaffected by problems in repayment of the loan. Moreover, making a spouse, who is a housewife, a co-applicant in the home loan, will not make much sense, when she is not able to reap the benefits of the tax breaks on the home loan.

See also: Home loan tax benefits

FAQs

Can joint applicants exit a home loan?

Yes, some banks offer this facility.

Do I have to leave ownership along with leaving co-applicant status?

Banks generally ask the co-applicant who wants to opt out, to sign a quitclaim deed, as well, to forgo his ownership over the property title.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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