Who Can Be Your Co-Applicant In A Home Loan?
If you plan to become the co-applicant or co-signor of a home loan, give this deep thought because it comes with huge responsibility. When you co-sign a home loan agreement, it is a serious step toward financial commitment. If anything goes wrong, or if the main home loan applicant defaults on repayment, you will be legally liable to repay the home loan.
Do not let your emotions get in the way of reasoning. Co-sign a home loan agreement only if you think you are financially capable of assuming such a huge responsibility.
MakaaniQ tells you who can be the co-applicant of a home loan, and all that you must consider before being one.
Who is a co-applicant?
A co-applicant is a person who applies for a home loan along with the main applicant. There are two types of co-applicants, one whose income is included while calculating home loan eligibility and the one whose income is not included while calculating home loan eligibility.
All co-owners of the property must mandatorily join as the co-applicants, but all co-applicants may not necessarily be co-owners.
If you are a partner in a partnership firm, your income will be considered for a home loan without the consent of other partners, based on your share in the firm.
If you are the director of a company, home loan eligibility and repayment assessment must be done for all directors with more than 3/4th shares of the company (the fraction may vary from bank to bank), regardless of whether the co-applicant is the co-owner in the property or not.
Co-applicants are unavoidable in the case of home loans to Non-Resident Indians (NRIs).
If the income of both applicants (main and co-borrower) are included in home loan eligibility, then obligations (monthly instalments of all running loans) of both the applicants will also be excluded while calculating home loan eligibility.
Income of spouses, parents and children can be clubbed together while applying for a home loan. Income of brothers and sisters can be clubbed together if they are the co-owners in the property. But if they are not the co-owners, many lenders do not permit clubbing together incomes to be eligible for a home loan.
Let us understand the possible relationship matrix while applying for the home loan.
A husband and wife can be co-applicants even if they are not co-owners of the property. The home loan tenure is decided based on the retirement age of the older partner. The income of both/either of the partners will be considered for determining home loan eligibility. Applicants mostly include the spouse's income to raise the home loan amount they are eligible to.
Siblings (2 brothers/ 2 sisters):
Two brothers can be co-applicants of a home loan only if they live together in the same property. They must be co-owners in the property for which they are taking a home loan. However, a brother and sister cannot be the co-applicants of a home loan. Similarly, two sisters cannot be co-applicants.
Son and father:
A father and his son (if there is only one) can be co-applicants in a home loan if they are joint owners in the property. If the income of a father is considered for home loan eligibility, his age will be considered to ascertain the home loan tenure. However, if a father has more than one son, it is presumed that the property belongs to his sons, for the obvious legal reasons.
Unmarried daughter and father:
An unmarried daughter can apply for a home loan with her father. But the property must be solely in her name, to avoid disputes after her surname changes.
Unmarried daughter and mother:
An unmarried daughter can apply for a home loan with mother as a co-applicant. But the property should be in the name of the daughter while the mother's income is not considered.
Son and mother:
A son and mother are, at times, co-applicants in the property when the father is no more. The son and mother also join as applicants when the mother is working and a joint owner of the property (even when the father is alive or when he has retired). This is done in order to enjoy higher home loan tenure (if the mother is younger to the father, and will retire years later when compared to her husband).
Friend and relatives:
Banks and financial institutions do not permit friends and relatives who are not blood relatives to join as co-applicants.
What should you keep in mind while applying for home loan as a co-applicant?
- You must understand why you should join as a co-applicant. Is this because you are the joint owner in the property, or is this to increase the home loan amount for a property in which you are not a co-owner?
- Understand that you are taking responsibility as the main borrower of the loan when you sign the home loan agreement as a co-applicant.
- You will be equally responsible as the main home loan applicant, if anything goes wrong or if the main home loan applicant defaults.
- Your credit score will be affected if the main home loan applicant does anything wrong or if he defaults on monthly payments.
- Read the terms and conditions pertaining to the co-applicant in the home loan agreement. Raise questions if you have any doubt.
- Do not sign the home loan agreement if you are not sure whether you should be part of a debt, especially when you are not a co-owner in the property.