In the ever-evolving housing market, securing a home loan has become an essential step for most individuals and families seeking to own a home. While the ever-rising real estate prices make it a daunting task to get a desirable loan approval, there are ways to improve your chances of getting approval for the full amount. One such strategy is involving co-applicants in the loan application. Co-applicants play a pivotal role in securing home loans, especially in Maharashtra, where property prices are high and competition is intense.

In this blog, we will explore the role of co-applicants in securing home loans, particularly in Maharashtra, and how having a co-applicant can benefit you in various ways.

What is a Co-Applicant in a Home Loan?

A co-applicant is an additional person who joins the primary borrower in applying for a home loan. Co-applicants can be family members, such as a spouse, parents, siblings, or even extended family members, who are jointly responsible for repaying the loan amount.

The inclusion of a co-applicant can positively influence the loan approval process. Lenders often prefer co-applicants, as it helps in sharing the financial burden, lowers the loan-to-income ratio, and provides an added level of security for the bank or financial institution.

Importance of Co-Applicants in Securing Home Loans

1. Improved Loan Eligibility
   One of the main advantages of including a co-applicant is the improvement in loan eligibility. In Maharashtra, where property prices, especially in cities like Mumbai, Pune, and Navi Mumbai, can be extremely high, many individuals struggle to meet the income requirements for loan approval. When you apply for a home loan jointly with a co-applicant, the combined income of both applicants is considered by the lender. This increases the overall eligibility, allowing you to borrow a higher loan amount.
   For instance, if you and your spouse apply for a home loan, the combined income will be assessed to determine the loan amount, which could be significantly higher than if you applied alone.

2. Better Chances of Loan Approval
   Home loan approval is heavily dependent on a borrower’s creditworthiness, which is evaluated through factors like income, credit score, and existing liabilities. When a co-applicant with a good credit history and steady income is added, it increases the chances of loan approval. Lenders often view this as a safer bet, as the risk of default is shared.
   In Maharashtra, where lenders are stringent about loan approvals due to the high cost of real estate, a co-applicant with a high credit score can dramatically improve the approval chances. A high credit score (above 750) makes the applicant more attractive to banks and financial institutions, as it suggests that the applicant is financially responsible.

3. Increased Loan Amount
   In cases where the primary applicant's income is not sufficient to cover the home loan repayment, a co-applicant can help increase the overall loan eligibility. This is particularly useful in high-cost cities like Mumbai, Pune, or Thane, where property prices are steep.
   For example, if your monthly income is ₹50,000, but the loan EMI requires a combined income of ₹1,00,000, adding a co-applicant with an income of ₹60,000 can make the monthly income meet the bank's criteria. This increases the possibility of securing a loan for the desired property.

4. Lower Interest Rates
   Some financial institutions offer more competitive interest rates to borrowers who apply with co-applicants, particularly when the co-applicant has a good credit score. This is because the risk to the lender is reduced when there is a second person responsible for repaying the loan.
   Lower interest rates can translate into significant savings over the life of the loan, making it more affordable for the borrower. In Maharashtra, where property loans tend to be long-term commitments, the impact of lower interest rates can be substantial.

5. Tax Benefits
   Both the primary applicant and the co-applicant are eligible to claim tax benefits on the principal and interest paid on the home loan under sections 80C and 24(b) of the Income Tax Act.

   • Section 80C: The principal repayment of the loan is eligible for a deduction of up to ₹1.5 lakh per annum.

   • Section 24(b): The interest paid on the home loan can be claimed as a deduction of up to ₹2 lakh per annum.

This means that both applicants can claim deductions individually, effectively increasing the total amount of tax benefits. However, this is only possible if both the co-applicant and primary applicant are co-owners of the property.

6. Co-Ownership of the Property
   When a co-applicant is added, it is usually assumed that they will also be a co-owner of the property. This means both parties have a legal share in the property and its ownership rights. Co-ownership provides security for the co-applicant, ensuring they have a stake in the asset.
   For example, if the primary applicant defaults on the loan, the co-applicant can take over the responsibility of repayment, as they are a legal partner in the agreement. This shared ownership can be especially important in family settings, where multiple people contribute to the purchase of a property.

Who Can Be a Co-Applicant?

While the inclusion of a co-applicant can enhance loan eligibility, it is important to choose the right person for the role. Some common co-applicants include:

• Spouse: Most common, as it reflects shared financial responsibility.

• Parents or Children: In many cases, family members such as parents or grown-up children may apply together for a home loan.

• Siblings: If siblings are jointly purchasing a property, they may apply as co-applicants.

However, it is important to note that co-applicants need to be closely related, as banks often require a strong family relationship between the primary borrower and co-applicant. Additionally, all co-applicants must contribute to the repayment of the loan.

Potential Challenges of Co-Applicants

While co-applicants can increase your eligibility for a loan, there are some challenges to consider:

1. Shared Liability: Both the primary borrower and co-applicant are equally responsible for repaying the loan. If one party defaults, the other party may face financial consequences.

2. Credit Impact: If the loan is not repaid on time, both applicants' credit scores will be affected. Therefore, it is important to ensure that both the primary applicant and co-applicant are financially stable.

3. Legal Complications: In case of a dispute between co-applicants or changes in family dynamics (such as divorce or estrangement), legal complications may arise regarding ownership rights and loan repayment.

Co-Applicants add assurance to a home loan application

In Maharashtra, where real estate prices are high and the home loan process can be complex, the inclusion of a co-applicant is a strategic way to increase loan eligibility, improve the chances of approval, and lower interest rates. Whether it is a spouse, parent, or sibling, having a co-applicant can provide you with added financial support and security. However, it’s important to carefully consider the responsibilities and liabilities associated with co-applicancy to avoid potential complications down the road.

By understanding the role of co-applicants and their benefits, you can make a well-informed decision when applying for a home loan in Maharashtra, ensuring that your dream of owning a home becomes a reality.