Should you opt for a joint home loan?

A home loan is a financial tool that allows individuals to purchase a house by borrowing from a bank or financial institution, making homeownership more accessible. It enables buyers to spread the cost of a property over several years, reducing the immediate financial burden. While most homebuyers opt for an individual home loan, there are multiple ways to secure financing, including a joint home loan, where two or more people apply for the loan together. This option can offer higher loan eligibility and shared repayment responsibility. But is it the right choice for you? Keep reading to explore how joint home loans work, along with their pros and cons.

What is a joint home loan?

A joint home loan is a type of home loan where two or more applicants apply together to secure financing for a property. Typically, co-borrowers can include spouses, parents and children, or siblings, though lenders may have specific eligibility criteria regarding the relationship between applicants. A joint home loan offers several advantages but also comes with a few limitations. Understanding the terms, responsibilities, and long-term financial impact is essential before opting for this loan type.

Who can be co-applicants in a home loan?

Banks generally prefer working spouses as co-applicants for joint home loans, as they provide financial stability. In many cases, lenders also allow parents and children to apply together. Some financial institutions may approve siblings as co-borrowers, but there are often restrictions, especially when it comes to sisters applying together. Additionally, live-in partners and friends usually do not qualify for joint home loans, as lenders prioritise applicants with legally recognised relationships to minimise risk.

Joint home loan co-applicant vs co-owner

Understanding the distinction between a co-applicant and a co-owner is essential when applying for a joint home loan. While both terms are often used interchangeably, they have different implications in terms of property ownership and loan liability.

• Co-owner: A co-owner holds legal ownership of the property. If a person’s name is on the property title, they are considered a co-owner, giving them rights over the property. In a joint home loan, all co-owners must also be co-applicants.

• Co-applicant: A co-applicant is someone who applies for the home loan along with the primary borrower to enhance loan eligibility. However, they do not necessarily have ownership rights over the property. Lenders consider the co-applicant’s income during credit appraisal, but unless they are also listed as co-owners, they have no legal claim to the house.

Benefits of joint home loans

A co-applicant significantly boosts your chances of getting a higher loan amount. You could get up to 90% of the transaction value as loan, if you apply in joint names. Otherwise, typically, the borrower has to pay 20% of the deal amount as the upfront amount.

Joint home loans provide multiple advantages, making them a preferred lending option. Here’s how lenders benefit from joint home loans:

Lower risk of default

A joint home loan allows co-borrowers to split the EMI payments, reducing the financial burden on a single individual. This makes loan repayment more manageable and reduces the risk of default. In case a borrower cannot pay up, the co-applicant can continue payments, ensuring the EMI does not bounce.

Higher loan amount eligibility

Since lenders consider the combined income of all co-applicants, borrowers can qualify for a larger loan amount compared to a single-applicant loan. This helps in purchasing a bigger or better-located property that might otherwise be unaffordable.

Lower interest rates for women

Many banks and financial institutions in India offer a lower interest rate if a woman is a co-applicant or the primary borrower. This can lead to significant savings over the loan tenure, reducing the overall cost of borrowing.

Improved loan approval chances

If an individual has a low credit score or insufficient income, adding a co-applicant with a stable income and good credit history can increase the chances of loan approval. This is especially helpful for first-time homebuyers with limited credit history.

Tax Benefits

Each co-applicant who is also a co-owner of the property can claim tax deductions on home loan repayment. Under Section 80C, they can claim deductions of up to Rs 1.5 lakh on the principal amount, while under Section 24(b), they can claim up to Rs 2 lakh on interest paid annually.

See also: All about home loan tax benefits

Drawbacks of joint home loans 

While joint home loans offer several benefits, they also come with certain drawbacks that borrowers should consider before applying. Here are some challenges associated with joint home loans:

Shared financial responsibility and default risk

All co-borrowers are equally responsible for loan repayment. If one applicant fails to pay their share, the other co-borrower(s) must cover the entire EMI. This can create financial stress and strain relationships, especially in case of job loss or financial instability.

Impact on credit scores

A missed or delayed EMI payment affects the credit scores of all co-borrowers, making it harder for them to secure future loans. Even if one applicant is responsible for non-payment, all applicants’ creditworthiness takes a hit.

Legal and ownership complications

A joint home loan does not automatically mean joint ownership of the property. If a co-borrower is not a co-owner, they still have repayment obligations without any legal claim over the house, which can lead to disputes in the future.

Challenges in loan closure or property sale

If one co-borrower wishes to exit the loan, they cannot do so without the lender’s approval. Selling a jointly owned property can also be complicated, as all co-owners must agree to the transaction, which may not always be easy.

Tax benefits limited to co-owners

Only those who are both co-borrowers and co-owners of the property can claim tax deductions. If an applicant is only a co-borrower but not listed as a co-owner in property documents, they cannot avail of tax benefits under Sections 80C and 24(b).

When should you opt for a joint home loan?

While a joint home loan has several benefits, it is particularly useful in certain situations. Here are some scenarios where applying for a joint home loan is a good idea:

• When you are unable to qualify for a loan individually: If your income alone is insufficient to meet the bank’s eligibility criteria for a home loan, adding a co-applicant can help. This is particularly useful for young professionals or self-employed individuals with fluctuating incomes.

• When you want to buy a bigger or more expensive home: If the property you want to buy is beyond your budget, applying for a joint home loan with a financially stable co-applicant (such as a spouse or parent) can increase your loan amount and make homeownership more feasible.

• When you want to improve loan approval chances: If your credit score is low or your financial profile is weak, a co-applicant with a higher credit score and stable income can enhance the likelihood of getting the loan approved. This is helpful for individuals with limited credit history or those with high existing liabilities.

• When you are purchasing a home as a married couple: If both spouses are working, applying for a joint home loan can be a practical option. Not only does it increase loan eligibility, but if the wife is a co-applicant, many lenders offer lower interest rates, reducing the overall borrowing cost.

• When you need to share the EMI burden: If you do not want to bear the full financial responsibility of the loan alone, taking a joint loan with a trusted co-applicant allows for a shared repayment structure, reducing the EMI load on each borrower.

When should you avoid a joint home loan?

While a joint home loan offers several benefits, there are certain situations where it may not be the best option. Here are some scenarios in which you should reconsider taking a joint home loan:

• When the co-applicant has an unstable income or poor credit score: If your co-applicant has an irregular income or a low credit score, it could negatively impact the loan approval process or lead to higher interest rates. Instead of strengthening your application, their financial instability could create additional risk.

• When the relationship with the co-applicant is uncertain: A joint home loan requires both applicants to be financially responsible for repayment. If there is any uncertainty in your relationship with the co-applicant—such as in the case of a strained marriage or disagreements with a sibling—it may lead to complications in ownership and repayment responsibilities later.

• When you can easily get a loan on your own: If your income, credit score, and financial stability are sufficient to secure a home loan independently, there may be no need to involve a co-applicant. Applying alone avoids the need for joint decision-making and potential disputes over financial responsibility.

• When the co-applicant may not be available for formalities: Joint home loans require both applicants to be present for loan processing, documentation, and legal procedures. If your co-applicant is living abroad or unavailable for extended periods, managing the loan process can become cumbersome.

• When you are unsure about long-term financial commitments: Since a home loan is a long-term financial commitment, any change in financial circumstances—such as job loss, medical emergencies, or other liabilities—can impact repayment ability. If there is uncertainty about future finances, taking a joint loan can increase financial risk.

Points to consider before taking a joint home loan

In case you have made up your mind to go for a joint home loan, here are certain factors to consider:

• If a couple has taken a joint home loan and the husband passes away in the middle of the repayment term, then, the entire responsibility of repaying the loan would fall on the wife. However, when it comes to ownership, the property will be divided between the mother and children, along with the wife of the deceased.
• A wife, who is only a co-applicant and not a co-owner, basically bears the responsibility for the loan without being the real owner of the property. Unlike the popular belief, women do not really have 50% share in their husband’s self-acquired property.
• It is difficult to exit from a joint home loan. Hence, a borrower should opt for a joint home loan, only if he or she is entirely sure of the move.

See also: Impact of divorce on a property under joint ownership

Housing.com POV

A joint home loan can be a smart financial decision for those looking to increase their loan eligibility, share the repayment burden, and avail of tax benefits. However, it also comes with risks, such as shared liability, credit score impact, and legal complications. Before opting for a joint home loan, it is crucial to evaluate the financial stability and reliability of the co-applicant, understand the legal aspects of co-ownership, and assess long-term financial commitments. If planned wisely, a joint home loan can make homeownership more accessible, but it should be chosen only when it aligns with your financial goals and circumstances.

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