When taking a housing loan, there may come a situation when our eligibility in terms of quantum of funding or tenure of loan could be lesser than what we want. Is that the end of the road? No, the way out is in bringing in a co-applicant….
Who is a co-applicant?
A co-applicant refers to a person who applies along with the borrower for a loan. This is done so that the income of the co-applicant can be used to supplement the borrower’s income and increase his/her eligibility.
Can anyone be a co-applicant?
No, Banks and housing finance companies (HFCs) have allowed only a few specified relations to be co-applicants. Although, it must be noted that it is not compulsion or legal requirement to have a co-applicant. Banks also do not allow a minor to be a co-applicant.
We also need to note that any co-owner has to compulsorily be a co-applicant to the loan.
Who can be a co-applicant to my home loan?
Most of the banks in our country allow a few specified relations to be co-applicants. Brother-brother, father-son, mother-son, husband-wife etc are acceptable combinations for borrower and co-applicant.
Father and son
In case of father and son, if the borrower is the only son, then, he can jointly apply with his father where both of their incomes will be taken into consideration. The property should be in their joint names.
In case a person has two or more sons and if he wants to apply jointly with one of them or both of them, then he should not be the main owner of the property. This is because, on his death, his children should succeed to the property jointly and may cause an inheritance dispute. In this case, the father can only be taken as co-applicant and his income may be considered for the loan. He may be the co-owner or not own the property at all.
Unmarried daughter and father
An unmarried daughter is eligible to apply jointly with her father. In this case, unlike father and sons, the property has to be only in the name of the daughter and the income of the father should not be considered. This is to avoid any legal complications later on when the applicant is married.
Unmarried daughter and mother
An unmarried daughter is eligible to apply jointly with her mother. In this case, unlike father and sons, the property has to be only in the name of the daughter and the income of the Mother will not be considered.
Brother and Brother
A brother may apply with his brother, provided, they are currently staying together and be determined to do so in the new property as well.
Husband and wife
One can include one’s spouse as a co-applicant for a home loan. His or her income will be included for working out of loan eligibility. In fact, from a bank’s perspective, this is an ideal situation and they would be very happy to have the husband/wife as co-applicant.
Who cannot be co-applicant?
As can be understood from the above discussions the following relationships cannot be a co-applicant for a loan:
- Married daughter & Mother/Father
- Sister and Sister
- Sister and Brother
What is the role of a co-applicant?
A co-applicant is completely responsible for the loan if the partner defaults, dies or otherwise refuses to participate in the partnership. The bank will pursue collection from one applicant without consideration of the partnership agreement.
Experts say that technically, a co-applicant becomes a co-borrower and by being a co-borrower, he is liable for the repayment of the loan and other dues.
Thus, a co-applicant becomes equally liable for repayment of the loan amount in case of non-payment by the borrower. The co–applicant will also be responsible for repayment of the loan in case of death of the primary borrower, even if there is insurance cover to the primary borrower.
Many banks and financial institutions insist on having a co-applicant but it is more of a necessity than a requirement. There is no legal requirement to have a co-applicant.
Benefits of having a co-applicant
- Success rate of your loan approval could be better
- Increased eligibility can help you buy a bigger house and get a bigger loan too
- Tax benefits for both the applicants and co-applicants