Impact Of a Co-Applicant’s CIBIL Score On Your Home Loan Application

As a popular credit instrument, Home Loans enable you to fulfil your homebuying aspirations, provided you meet the eligibility criteria set by your lender. Sometimes, instead of accepting a single Home Loan applicant, lenders might suggest adding another applicant to the loan to boost repaying capacity and financial viability. But is it a good idea to have a co-applicant on your Home Loan?  

Who Is a Co-Applicant in Home Loans?

The main applicant is usually referred to as the primary applicant. Adding another individual’s name to the loan application makes him/her the co-applicant. Such Home Loans are called joint Home Loans wherein one can include up to seven co-applicants if needed.  

If the primary applicant is unable to pay the EMIs for any reason, the onus of compensating the repayment falls on the co-applicant/s. Since all co-applicants are expected to share the EMI burden, a joint Home Loan minimises chances of loan defaults and assures lenders of timely repayments.  

In case there are multiple owners of a property, lenders could ask all the co-owners to become co-applicants for higher accountability. This acts as a safeguard and a prudent underwriting practice. However, a co-applicant may not necessarily be the co-owner of the house.  

Who Can Be a Home Loan Co-Applicant?

Immediate family members, who have regular sources of income, are considered eligible as Home Loan co-applicants. They may include any of the following: 

• Parents 
• Spouse 
• Brother 
• Children 

Note: This is a general list of acceptable co-applicants. Some lenders may have riders on specific co-applicant combinations.  

Impact of Your Co-Applicant’s CIBIL score for Home Loan Application

Applying for a Home Loan with a co-applicant, who has a good CIBIL score, may raise your eligibility for better loan terms. You can avail of competitive interest rates and a higher loan amount. Conversely, if the co-applicant’s CIBIL score is on the lower side, it could hurt your loan eligibility. A co-applicant’s score will not affect your credit rating in any way. But if the main borrower defaults, it negatively impacts the credit profile of both applicants.  

Before you fill your loan application, it is advisable to check the CIBIL scores of the co-applicant/s to ensure clarity on their credit profile and repayment history. Even if there is a minor payment overdue on an old credit card or incorrect reporting by any financial institution, it could hamper the concerned co-applicant’s CIBIL score and dent your chances of receiving a loan sanction.   

Additional Read: What is a Good CIBIL Score for a Home Loan 

Benefits of Having a Home Loan Co-Applicant

There are several advantages of a joint Home Loan in comparison to an individual Home Loan such as: 

Higher Loan Amount

At times, the income of one individual might not suffice while trying to secure a heavy principal amount. But when you add another eligible co-applicant, lenders will consider loan eligibility based on the income levels of both applicants, and you could obtain up to 90%* of the property’s value as loan. Combined finances automatically boost loan eligibility and enhance your prospects of availing larger loan sums. Consequently, it enables you to raise the budget threshold and purchase a bigger house. 

Lower Interest Rates

Most lenders in India extend lower rates of interest to female Home Loan borrowers. So if you apply for a Home Loan with your wife or mother, you can enjoy attractive interest rates on home loans, which could be 10 to 25 basis points lower than the usual interest rate. Having a female co-applicant improves your eligibility for obtaining cost-efficient Home Loans.  

Income Tax Exemptions

One of the merits of being a co-applicant is that you can claim Home Loan tax benefits individually on the loan. This results in substantial savings under the Income Tax Act. All co-applicants can avail of several rebates such as: 

• Section 80C – Each applicant can enjoy separate deductions up to Rs.1.50 lakh per annum, or net Rs.3 lakh for both, towards the principal component of the Home Loan. 
• Section 24 – Both applicants can claim tax reductions up to Rs.2 lakh each annually for the interest paid on the Home Loan with combined deductions up to Rs.4 lakh. 

Remember, the exemptions under ITA provisions can be claimed in proportion to each co-applicant’s share. The total amount obtained as tax benefits by both applicants should never exceed the actual principal sum or the interest paid to the lender.  

Additional Read: Complete Guide on the Benefits of Joint Home Loan 

Other Benefits of Maintaining a High CIBIL Score for Home Loans

A high CIBIL score of 750 or above denotes good repayment capacity. This assures you of hassle-free loan approvals, faster processing and swift disbursal of funds. If you possess steady earnings and an excellent credit score with no history of loan defaults, you could qualify for pre-approved loan offers as well, which can speed up the entire loan process.  

To Conclude

Applying for a housing loan with a co-applicant increases your spending potential, while the shared repayment burden lets you manage credit liabilities comfortably. It also allows co-applicants and first-time loan applicants to build their credit scores effectively. Regardless, it is difficult to leave a joint Home Loan mid-way; therefore, prospective loan borrowers must carefully weigh the advantages and disadvantages of having a co-applicant for Home Loans before including one in their loan application.  

*Terms and conditions apply.