Taking A Home Loan With A Friend? These Tips Are For You
Co-owning a property with a family member has been the norm, but these days people do not shy away from collaborating with their friends. While many believe that two can have a transparent communication about the property to invest in and the future of it, there are some who think it can be a risk, in case the two plan to become co-borrowers.
Taking up a home loan with a friend can come with its share of challenges, including the amount that needs to be borrowed, the credit score of the two borrowers and also, the capacity of paying the equated monthly installments (EMIs). MakaaniQ lists tips that will help you make a wise decision of becoming a co-borrower with your friend:
Choose the loan type
The first thing that you two need to zero down is the type of loan you should take up. This includes the duration of the loan, the EMI that you will pay and also, the interest rate levied. As co-borrowers, remember, that both of you can avail of income tax deductions on the principal repayment under Section 80c and also on the interest amount under Section 24. The maximum amount that you can claim for deduction will depend on the use of the property -- Self-occupied property or a let-out property.
Calculating the EMI
When choosing a home loan, calculating EMI is where the two of you need to find a common ground. While you are willing to pay a higher EMI for a short period, your friend would want to keep the EMIs small and hence, for a longer period. While the two of you together take up a loan, it is important to understand each other's financial liabilities.
Be aware of credit history
Before you take up a home loan with your friend, make sure you know each other's credit history. A good credit history of both the borrowers will make it easy to get the loan, while if anyone of you has a bad history, it might call for a delay or rejection in the loan. Moreover, credit history will also help you know the financial standing of your friend who is also a co-borrower.
An agreement stating conflicts
Even though you two are good friends, money matters can be a cause of conflict. Before it sours your relation, have an agreement that states roles and responsibility of both the investors. Find the areas of conflict, including how will the property be used, who will take care of the maintenance, splitting of the bills and even property visits from time to time. Make sure you both state the use of the property as well as the time for which you will keep it.