Key Benefits of Adding a Co-applicant to 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. Lenders want to minimise any chances of default and therefore, set stringent eligibility criteria for Home Loan. Not meeting these eligibility criteria may lead to a Home Loan application rejection. However, borrowers with low Home Loan eligibility can enhance their chances of Home Loan approval by adding a financial co-applicant to their application. Borrowers who meet the eligibility criteria can also add financial co-applicants to their Home Loan applications to avail of better loan terms. In this article, we look at the benefits of having a co-applicant.  

Who is a Financial Co-Applicant in a Home Loan?

A financial 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.  

You may choose to add a financial co-applicant to enhance your Home Loan eligibility, preferably adding someone who has a good credit profile and a high credit score of at least 750. Adding a creditworthy co-applicant can certainly increase your chances of being approved for a Home Loan.  A borrower can add any immediate family member as a co-applicant for a Home Loan. Parents, spouses, brothers, and children can be added as co-applicants on a Home Loan application. Note that married daughters cannot be added as a co-applicant for a Home Loan.    

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 financial co-applicant to their application. 

People Also read:  A Complete Guide on the Benefits of Joint Home Loan 

Benefits of Having a Financial Co-Applicant 

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

You May Get Access to a Higher Loan Amount  

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 financial 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 may become eligible for a higher loan amount. 

You May be Able to Access Low-Interest Rates

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

First, when you add co-applicants to your loan application, you minimise the risk involved for the lender in lending you funds since the responsibility 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.  

People Also Read: Important Factors that Affect Your Home Loan Interest Rate 

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 should 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 financial co-applicant has many advantages. However, 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.

Also Read: Impact of a Co-Applicant’s CIBIL Score on Your Home Loan Application