For many would-be home buyers who are having difficulty obtaining a home loan because of unaffordable home prices, joint housing loans often come as a breather. Many dual earners also opt for a joint home loan to realize their dream of owning their own home.
A joint home loan is useful when you are short of money to buy your house. It can also be useful in situations where your credit score is low or when you are not eligible for loans. Joint housing loans are arranged between family members, usually between couples.
However, you should pay attention to a number of points before taking out a joint home loan.
Choose your partner carefully
Close relatives or relatives who have a legitimate source of income or co-ownership in the property can be a partner with you in a home loan. For example, husband, son and father, brothers and unmarried daughters with father/mother are some of the possible co-loans. However, sisters, friends and distant relatives (non-blood) are not allowed as companions.
It is necessary to choose your co-borrower carefully. You must consider the risk of a dispute with your co-borrower. For example, if your spouse is a partner and there is a future divorce, there must be agreement about who will be liable for the EMIs. Likewise, the dispute can happen to brothers as co-companiers, parents, etc. The best way to avoid such situation is to choose your co-companion carefully.
Check the suitability of the partner’s loan
Before applying for a home loan from a partner, you must check whether he/she is eligible to take out the loan. Adhil Shetty, CEO of Bankbazaar.com, says: “The sharer can improve your creditworthiness. But if the lender has a bad credit profile, you’d be better off going without them. When choosing the lender, check their income, credit score, repayment capacity, and level of commitment to being part of your home loan journey.
Take out a loan insurance
One of the reasons for taking out a home loan with a lender is to reduce the EMI burden, but what will you do if the lender is unable or unable to pay due to a financial or health crisis? The entire repayment obligation also shifts to the remaining co-participant(s) in the event of early death of one of the co-participants. However, you can avoid such risks by insuring the lives of all borrowers. A term plan can be a good option to cover the risk of death.
Available tax benefits
If you are a co-borrower and co-owner of the home, you can make use of the various tax benefits on the home loan. Any co-borrower who is also the co-owner of the property can take advantage of tax deduction benefits up to Rs 2 lakh u/s 24 of the Income Tax Act, on payment of mortgage interest during the qualifying fiscal year. Suppose both borrowers have a 50% share of the property and you together paid an interest of Rs 5 lakh on your home loan, then you can each get a tax deduction benefit of Rs 2 lakh. Likewise, any co-owner can avail the tax deduction benefit of up to Rs 1.5 lakh per u/s 80C of the IT Act, against annual principal refund. Each sharer can avail of tax benefits in proportion to their property and is subject to the maximum ceiling for the individual under the tax laws.
Remember these points to prevail as you sign the dotted lines of your joint mortgage agreement.
* A joint home loan is useful if a person has a low credit score or if you do not qualify for a loan. It was taken between family members
* Be aware of the risk of a dispute with your partner before embarking on a financial journey together
* If you are a co-borrower and co-owner of the home, you can make use of the various income tax benefits on the home loan