Do’s & Don’ts of Applying a Joint Home Loan

A Home Loan is a crucial financial decision given the fact that it entails a huge sum of money, and that it can last for as long as 10 to 20 years, and in some cases even more. It is due to the sheer bulk of responsibility that comes with a Home Loan that many couples consider applying for a Joint Home Loan. Not only does it lower the onus of each co-applicant, but it also helps in increasing the eligibility, thereby guaranteeing a higher loan amount. However, as is the case with every financial choice, even a joint Home Loan must be governed by some precautions.

Let us take a quick look at some of the significant Dos and Don’ts of Applying for a Joint Home Loan.

1. Do check whether you wish to be a co-owner as well

In a vast majority of cases, it is seen that though the spouses are co-borrowers in a home loan, the property is owned only by 1 partner. This is because the banks do not need the co-applicant to be the co-owner of the house. If yours is the same case, you may want to re-evaluate the situation. After all, as a co-applicant for the loan, you will be liable for the loan repayments; however, if you’re not a co-owner, you will not have any share in the property. 

When it comes to the improbable death of the homeowner, with the second partner being only the co-applicant and not the co-owner, it is crucial to understand that the surviving partner will only inherit one-third of the share of the property. This is because, as per the regulations, in the absence of a will, the assets are divided equally between the parents, the spouse, and the children of the deceased owner.

2. Do check whether your loan limit is increased

Your home is a one-time big-ticket purchase, and ideally, you should have as much amount on hand as needed to invest in the same. When compared to the loan amount that one of the spouses is eligible for, the joint eligibility of a couple is always higher (when both partners enjoy a regular income). Hence, make sure to check that your chosen bank is offering you an increased Home Loan limit. If not, negotiate the same with the bank officials, or choose a lender who is readily offering a higher loan amount.

3. Do look out for concessions

In most cases, women applicants enjoy lower interest rates on Home Loans. For instance, SBI Home Loan comes with a concession of 5 bps for female Home Loan applicants. Hence, it could be in your favour to take the Home Loan with the female partner as a primary applicant. This step can also help you save some money on the stamp duty fee levied on the registration of the property.

4. Do understand the tax benefits

A joint application with your wife will not only entitle you to a lower SBI Home Loan Interest Rate, but you can also enjoy wider tax benefits.

It indeed is one of the primary advantages of applying for a joint Home Loan. Under Section 80C of the Income Tax Act, a Home Loan borrower is entitled to the benefit of up to Rs. 1.5 Lakhs on the principal amount repaid in a given financial year. Similarly, the borrower is eligible for a deduction of up to Rs. 2 Lakh on the interest paid in a year. In case of a joint loan, this tax benefit of up to Rs. 3.50 Lakhs can be availed by both partners, which can provide for a significant saving over the tenure of the Home Loan. Hence, you must look into the tax benefits of a joint Home Loan with the help of your CA or your loan assistance officer.

5. Don’t ignore the possibility of divorce or death

While no one likes to think about adverse situations, but life comes with its uncertainties, and one never knows if a divorce or even worse death is on the cards.

In case of the death of one of the co-applicants, the surviving partner has to endure the remaining loan repayments while also managing other living expenses, all from a single source of income. To ensure that the single partner is not ridden with this huge burden, you must ensure that you get a term insurance plan under the name of the primary applicant. Moreover, you must request for the inclusion of your Home Loan liability in the insurance cover.

Moreover, the co-applicants should sign an agreement along with the details of loan liability for each partner, subject to separation/ divorce/ dispute in the future. This agreement should be duly notarised.

6. Don’t ignore the impact of your Credit Score

When applying for a joint Home Loan, you must be aware that the bank will run a check for the credit score of both the partners. Herein, even if the credit history of one of the partners shows a default, you may have to pay a higher interest rate on your Home Loan. Hence, only if the Credit Score of both, you as well as your partner is higher than average, should you expect reasonably a low rate.

Furthermore, failing to pay the EMI on time, the default will impact the credit score of both the applicants. Hence, this is one aspect you should carefully consider before applying for a Joint Home Loan.

Also Read: Claim Tax Rebate on Joint Home Loans Easily with These Tips

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