Don’t all of us eye the new car with latest features, the coolest mobile to hit the market, that apartment from a prestigious builder that promises an infinity pool and private garden and literally the sky!
Yes, times are changing and so are human wants.
However, we wish that the resources needed for possessing all of them were easy. It might not be for all of them, but definitely yes, when it comes to home loans. A little knowledge about joint ownership and joint home loans can be of help to you to use this resource in a better way.
Differentiating co-owners and co-borrowers
Joint-owners or co-owners are those people who have a share in the said property. More than one person can be the owner of a property. Joint property owners most of the times are spouse or it could be parents, children or siblings. A property can also be jointly owned with anyone- it could be friends, colleagues, distant relatives etc.
While there are no restrictions in owning a property with anyone, joint home loans come in with certain restrictions. Banks do not sanction joint home loans for relations other than husband-wife, parents and children and in certain cases for brothers, provided they have joint ownership.
Co-ownership of property not is generally mandatory for considering the income of applicants for a loan. All co-borrowers are equally responsible for repayment of loan taken from the bank.
Should all property owners become loan applicants?
Consider this, you are planning to buy a property worth Rs 1 crore, but your income alone doesn’t qualify for the loan. At this time, you can increase the loan eligibility by adding a co-applicant. Combined income will increase loan eligibility and can also help in splitting the loan repayments. There is no harm in all property owners becoming loan applicants, but you can also choose not to be a co-applicant.
Also the credit worthiness of an applicant is gauged before he/she is considered as a co-applicant.
Can property ownership be a reason for loan rejection?
While joint property ownership by itself cannot be a reason for loan rejection; many other associated reasons may result in loan getting rejected. A low CIBIL score or any observations that may come up during the due diligence of documents provided by either of the applicants may result in rejection of the loan.
Loan will be rejected in case where a minor is held as co-owner of a property, even if it is children or grandchildren. This is because of the legalities involved in property ownership.
Can co-owners enjoy tax benefits?
There is a slight difference between the terms co-owners and co-borrowers/applicants. Tax benefits related to owning a home, come in the form of tax breaks associated with a home loan. Hence merely being co-owners does not earn you any tax benefits. To be eligible for tax benefits, you need to be co-borrowers of the home loan availed for the said home.
What are the tax benefits that can be availed by joint property owners?
Tax benefits vary depending on whether the home is self occupied or let out (or deemed to be let out). In case of a self occupied house, all co applicants to the loan can avail benefits under Sec 80C for repayment of principal and under Sec 24 for payment of interest up to a ceiling of Rs 2,00,000.
In case of a second house which is actually or deemed to be let out, the entire interest paid is allowed as a deduction from your income. In this case, the co-applicants can claim this deduction in same ratio as their contribution to the loan repayment.
Suppose wife pays for 60% of the EMIs in a year and the husband 40%, and the total interest paid for the loan during the year is Rs.2,40,000. Then wife could claim deduction for Rs.1,44,000 and husband can claim for Rs 96,000.
Who is liable to repay the loan?
The liability to repay the loan obtained lies equally with all of the applicants. For example, let us suppose that a working couple has applied for a joint home loan and after few years, the wife stopped working and the husband continues paying the loan EMIs by himself. Now if he had temporarily stops working due and the EMIs could not be paid, the bank serves notice for nonpayment against both husband and wife, as they are equally responsible for loan repayment.
Co-ownership of property and joint home loans can make or break your loan deal. While having co-borrowers will enhance your loan eligibility, a co-borrower with a bad credit score or a minor child being a co-owner of your property can stand as a reason for your loan rejection.