Impact of Co-Applicant’s CIBIL Score on Home Loan

As a popular credit instrument, a Home Loan can 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 a co-applicant to the loan to increase repayment capacity and financial viability. But is it a good idea to have a financial co-applicant on your Home Loan?   

Who is a Financial Co-Applicant in Home Loans? 

The main applicant who applies for a Home Loan 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 EMIs, a joint Home Loan minimises the 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 financial 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.   

Documents Required from Co-Applicants for Home Loan Processing 

As a co-applicant, one needs to submit the following documents***: 

Identity Proof 

• Aadhaar Card 
• PAN Card or Form 60 (mandatory) 
• Passport 
• Voter ID 
• Driving Licence 

Address Proof 

• Aadhaar Card 
• Passport 
• Utility Bills 
• Rent Agreement (if applicable) 
• Voter ID or Driving Licence with address 

Income Proof 

For Salaried Co-Applicants: 

• Salary Slips (last 3–6 months) 
• Form 16 or Income Tax Returns (ITR) – last 2 years 
• Bank Statements (salary account – last 6 months) 

For Self-Employed Co-Applicants: 

• Income Tax Returns (ITR) – last 2–3 years 
• Balance Sheet and Profit & Loss Account (CA certified) 
• Business Registration Certificate 
• Bank Statements (business and personal – last 6–12 months) 

Photographs 

• Recent passport-sized photos of co-applicant(s) 

***This list is indicative. Lenders may ask for additional documents if required. 

Impact of a Financial Co-Applicant’s CIBIL Score on the Home Loan Application 

Here is how your co-applicant’s CIBIL score can influence your Home Loan application:

• Applying for a housing loan with a financial co-applicant, who has a good CIBIL score, may raise your eligibility for better loan terms. You can take advantage of competitive Home Loan interest rates and a higher loan amount. 
• If the co-applicant’s CIBIL score is low, it can harm 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. Therefore, it is advisable to check the CIBIL scores of the co-applicant/s to ensure clarity on their credit profile and repayment history. 
• If the co-applicant has multiple loans or high credit utilisation, it may reduce their contribution to eligibility and affect loan sanction. 
• If the co-applicant is a guarantor for another loan, their financial liabilities may impact the new loan's approval process. 

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

Benefits of Having a Financial 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. Combined finances may increase loan eligibility and your prospects of availing of a larger loan amount. 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 financial 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(b) – 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 the Income Tax Act, 1961, 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 amount or the interest paid to the lender.   

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

Things to Consider Before Adding a Co-Applicant in a Home loan

Adding a co-applicant to a Home Loan can strengthen eligibility, but it also brings shared financial responsibility that lasts for years. Both applicants are equally accountable for EMIs, and any missed payment affects both credit scores, regardless of who manages the repayment.
A joint loan also reduces individual borrowing capacity, as the obligation appears on both credit reports.

Benefits of a High CIBIL Score for a Home Loan

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-qualified loan offers as well, which can speed up the entire loan process.   

A strong CIBIL score can increase your loan eligibility and allow you to avail of a higher loan amount to purchase your desired home. Lenders may offer lower interest rates to borrowers who have good credit scores, thereby reducing the overall cost of borrowing and making EMIs more feasible.  

How to Improve Your Co-Applicant’s CIBIL Score Before Applying? 

A co-applicant can take the following measures to improve their CIBIL score before applying: 

• Ensure that all outstanding dues, such as unpaid EMIs or credit card balances, are cleared. 
• Check the CIBIL report to identify any errors or outdated information that could be reducing the score. 
• Try to keep the credit utilisation ratio low, ideally under 30% of the total available credit limit. 
• Avoid applying for multiple credits or loans simultaneously, as it can reduce your score.  

Conclusion 

Applying for a housing loan with a financial co-applicant increases your spending potential, while the shared repayment responsibilities let you manage credit liabilities comfortably. It also allows co-applicants and first-time loan applicants to build their credit scores effectively. Prospective loan borrowers must carefully weigh the advantages and disadvantages of having a financial co-applicant for Home Loans before including one in their loan application.   

Also Read: Is a Good CIBIL Score Mandatory for Home Loan Approval? 

*Terms and conditions apply.