Getting a home loan is dependent on various factors. Even before you apply for a home loan, you should have the required funds for down payment. You must also fulfill the eligibility criteria set by the lender. Even if you get your home loan approved without satisfying the lender criteria, you may not get the amount of money you need or an affordable interest rate. In all these scenarios, taking a joint home loan will help. Let us now look at the pros and cons of a joint home loan. 

Pros Of Taking A Joint Home Loan 

You Will Be Eligible For A Higher Loan Amount: When you take a joint home loan, you will be eligible for a higher loan amount. The lender takes into account the incomes of both borrowers to sanction the loan. This can help you buy the home that you want. Also, it is enough if one of the borrowers has a good credit score. The loan then gets approved with ease with the desired amount sanctioned.  

Lower Interest Rates: If you take a joint home loan with women borrowers, you may get lower interest rates. Lenders in India offer concessional interest rates for women. It is up to 10 to 25 basis points lower than the interest rates for male borrowers.  So, you can add your spouse or mother as a joint home loan borrower or joint owner in your home loan application.

Both Borrowers Are Eligible For Tax Benefits: Both borrowers are eligible for tax benefits available for a home loan and can claim the deduction individually. This is true for both repayment of principal under Section 80C and interest repaid under Section 24 of the Income Tax Act. But, this will be possible only if both borrowers are co-owners. You can jointly borrow a home loan with your family members, parents, spouse, male child, unmarried female child, or brothers living together. 

Lowers The Risk of Taking A Home Loan: You can lower the risks associated with taking a home loan if you borrow a joint home loan. Both borrowers are responsible for paying the home loan even if both are not co-owners. Also, you will be eligible for a lower home loan EMI sometimes. For example: Banks offer lower home loan EMIs to women borrowers. 

Flexibility in Repayment of The Home Loan: When you apply jointly for a home loan, you become eligible for a higher loan amount. It is not mandatory for both the co-applicants to pay equally towards the principal as well as the interest. Therefore, each of you can decide who will contribute how much for the repayment. 

Cons of Taking A Joint Home Loan 

Both borrowers get impacted if one does not pay the home loan EMI on time. For example: if one co-borrower fails to repay the home loan EMI, then it will impact the other co-borrower’s credit score negatively. 

Documentation gets delayed: The time taken by the banks to complete processing and documents submitted by both (or multiple) applicants are authentic. The credit history of the applicants also has to be verified. Based on the number of applicants who have jointly applied for the home loan, this process is repeated two or three times. 

Impact on Credit Score: If either of the applicants defaults on loan repayment, then it affects the credit score of both.

You May End up Paying Tax on property Not Actually Rented Out: If you and your spouse are working, you will consider buying another house in the future since there are easy options like the joint home loan. When you have two houses, one is deemed to be rented out even if it is not. This rented income is taxable and even if you are not getting the rent, you still have to pay the tax.

Divorce Cases:  If there is a divorce between two co-borrowers and a spouse decides to come out of the loan, then it is the responsibility of the first applicant to pay the entire loan. If the applicant defaults in making the repayment, legal action will be taken against all joint borrowers. There could also be the scenario where one of the co-borrower passes away or files for insolvency. Then, the surviving spouse needs to take responsibility for the loan. It is thus good to avail separate term plans or life insurance so as to decrease the financial liability on one applicant in case the other one dies.

Who All Can Be Considered As Co-Applicants For A Home Loan? 

The following people can be considered as co-applicants for a home loan and they are:

  • Parents
  • Spouse
  • Unmarried daughter 
  • Sons 

It does not mean that being a co-borrower will make you a co-owner. However, to avail of maximum benefits, you should also be a co-owner.  

Conclusion

Thus, a joint home loan has more benefits than disadvantages. So, when you take one, be judicious. Selecting the right co-borrower is essential so that the entire loan does not become a risk. To prevent disputes in a joint home loan, both co-borrowers must know the terms and conditions of a loan. Also, if you are going to become a co-borrower in a home loan without being a co-owner, know about the consequences. If the co-owner who is also the co-borrower defaults in repaying the loan, then there will be severe consequences. You must make all the computations before getting into a loan agreement with the lender.