The Fact Maker

Things to consider as co-borrower for a home loan.

-By Mr.Ravindra Sudhalkar CEO of Reliance Home Finance

The most significant debt you may incur in your lifetime is a home loan. It is a considerable liability as you pay a substantial portion of your income in the form of EMIs for decades. But, having a co-borrower in a home loan can reduce this strain and make your life easier.

Many people are realizing their dreams of owning a home in these lucrative times of low-interest rates and flexible work environments. While many finance their purchase from savings and investments, many prefer to take a home loan. But, a home loan is a huge responsibility and a long-term commitment, and if not planned well, a burden too. Hence, it is crucial to plan in advance before taking a loan and rope in a co-borrower or co-applicant.”

Who can become a co-borrower?

Up to six applicants can apply as co-borrowers; however, friends, unmarried partners, and sisters do not qualify to apply together for a housing loan even though they can be co-owners of a property. As per current eligibility criteria, only close relatives can be co-borrowers, such as spouses, brothers living together, and children-parents.

Pros and cons of becoming a co-borrower

Taking a joint home loan reduces the debt burden, and you can apply for a bigger loan amount. Of course, the quantum would also depend on the income and credit history of the borrowers and existing financial liabilities. Jointly availing a loan increases the chances of the loan being sanctioned, especially if the applicants’ credit score is lower. Besides, the co-borrowers can avail tax benefits as per their share of the home loan repayment.”

However, a problem could arise if a co-borrower loses his job or dies during the loan repayment tenure or any dispute occurs between the borrowers regarding homeownership. Besides, a co-borrower does not necessarily mean a co-owner of the property, so a co-applicant should keep that in mind before signing up for the responsibility. The loan could also come with a higher interest rate if the applicants have a lower credit score.

The documents required for applying for a joint home loan are the same as a single applicant. These include proof of identity and residence, authenticated latest salary slip, Form 16 for self-employed and business people, and bank statements for the last six months. Even within this broad eligibility criterion, banks and Housing Finance Companies (HFCs) may evaluate relationships between the co-borrowers to avoid issues around inheritance or property disputes. Also, in case an applicant is a non-resident Indian, having a co-borrower is mandatory.

Lastly, given the processes and responsibilities of taking a housing loan, co-applicants should first ask themselves if they are sure to commit for the long term. Is the person okay with just being a co-borrower and not necessarily a co-owner of the property? It is also essential to know the pros and cons of being a primary applicant for a joint loan. Also, if the borrower defaults on payments, the credit score of the other could be impacted. So, it is a prerogative of both the applicants to be familiar with and carefully scrutinise loan documents to know what one is getting into. And, if all aspects are taken into account and doubts are cleared, one can fully enjoy the goodness of a bigger and better home.