Advantages of Including a Co-Applicant on Your Home Loan

A Home Loan is one of the most convenient credit tools available to aspiring Home Loan buyers. A Home Loan allows borrowers to build an appreciating asset in a hassle-free manner. Unfortunately, not everyone gets approved for a Home Loan. Lenders want to minimize any chances of default and therefore, set stringent eligibility criteria for Home Loans. Not meeting these eligibility criteria leads to Home Loan application rejection. However, borrowers with low Home Loan eligibility can enhance their chances of Home Loan approval by adding a co-applicant to their application. Borrowers who meet the eligibility criteria can also add co-applicants to their Home Loan applications to ease the burden of loan repayment. In this article, we look at the benefits of having a co-applicant. 

Who Is a Co-Applicant?  

A co-applicant is an individual who shares the responsibility of Home Loan repayment with the primary borrower. A borrower can add up to 7 co-applicants to a Home Loan application. All co-applicants are equally responsible for repaying the Home Loan amount.  

If you are adding a co-applicant to enhance your Home Loan eligibility, you must add someone who has a good credit profile and a high credit score of at least 750. Adding someone creditworthy will certainly increase your chances of getting approved for a Home Loan. A borrower can add any immediate family member as a co-applicant. Parents, spouses, brothers and children can be added as co-applicants on a Home Loan application.  

Now that we are clear on the duties of a co-applicant and who can serve as a co-applicant, let us look at why borrowers should consider adding a co-applicant to their application. 

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Benefits of Adding a Co-Applicant  

Adding a co-applicant comes with several benefits, some of which are listed below: 

You May Get Access to a Higher Loan Amount 

When it comes to buying a home, people want to buy the best home that their income and salary allow them to buy. They do not mind going a step further and splurging a little extra - after all, it's not every day that you buy a home. However, buying one's dream home often requires one to shell out more money than one can afford. Therefore, in such a scenario, gaining access to a higher loan amount than one is eligible for becomes crucial.  

Borrowers decide whether to accept a loan application or reject it based on a borrower's credit score and they decide the loan amount to be sanctioned based on the individual's income profile. When a borrower adds a co-applicant, the lender looks at the combined income of all the co-applicants while deciding the loan amount to be sanctioned. Thus, when borrowers add co-applicants who are working, they automatically become eligible for a higher loan amount. 

You May Be Able to Access Low-Interest Rates

When you add co-applicants with a strong credit score and good income profile, you increase your chances of availing of a Home Loan at low-interest rates. This happens primarily due to two different reasons.  

First, when you add co-applicants to your loan application, you minimize the risk involved for the lender in lending you money since the liability and burden of loan repayment is shared by multiple people and therefore, the chances of default go down as well. Thus, when a borrower adds reliable and creditworthy co-applicants, they enhance their negotiating power and can negotiate for a lower interest rate on a Home Loan.  

Further, most lenders offer lower interest rates to women applicants. Thus, if the co-applicant you have chosen is a woman, you will automatically become eligible for a lower interest rate on your Home Loan. 

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You Will Be Able to Save a Lot of Taxes

If you are planning to avail of a Home Loan to buy a home, you must consider adding your spouse or children or parents, if they are working, as co-applicants. Not only will this make you eligible for a higher loan amount, but it will also allow you to save more tax.  

Co-applicants who are co-owners can avail of home loan tax benefits separately. Under Section 80C of the Income Tax Act, all co-applicants can claim up to a maximum of Rs.1.5 Lakh as tax deductions on payments made towards principal repayment. Similarly, all co-applicants can also separately claim tax deductions up to a maximum of Rs.2 Lakh on payments made towards interest repayment. However, these tax exemptions are only available when the co-applicants are also co-owners. 

Final Words 

Adding a co-applicant has many advantages. However, before adding a co-applicant to your loan application, check their credit score. A co-applicant with a bad credit rating can do you more harm than good. Further, before adding anyone as a co-applicant, explain to them their roles and responsibilities and have them on board with you in this journey only if they feel as responsible as you towards building this asset with you.