Co-Applicant in Home Loans: Role, Benefits & Eligibility

If you are struggling to meet the eligibility for a home loan, adding a co-applicant can be your solution. A co-applicant can reduce your financial burden and even make you eligible for a higher loan amount. They act as a guarantor or a safety net for the banks when you apply for a home loan.

If low income, pending loans or inadequate CIBIL score is a hurdle, you may consider adding your brother, spouse, or any working individual within your family as your co-applicant. In this blog, we will explain the entire process of adding a co-applicant to a home loan and discuss the significance it holds. 

Who is a Co-Applicant/Co-Borrower?

A co-applicant or a co-borrower is a person who shares your home loan burden equally with you. It shares all your responsibility like EMI payment and responsible for repaying the loan amount. But remember the co-applicant sometimes does not have any property rights. Let's understand why.

What is the difference between a co-applicant and co-owner?

A co-owner shares ownership of the property with the primary borrower. If they are also a co-applicant, they will be responsible for repaying the loan. Otherwise, they may not be held accountable for the repayment.

For example, your father applies for a home loan with you as a co-applicant(guarantor), but he might not have any property rights or be a co-owner. This depends on the registry and sale deed. All he will share is the financial responsibility of the loan repayment. It’s also important to note that a co-applicant can be a co-owner too, and in some cases, they are!

What is the Difference Between a Co-signer and a Co-applicant?

A co-signer would only step in case of a default. They are basically a guarantor or a safety net in case the primary borrower does not oblige to the agreement or fails to repay the loan.

Who Is Eligible To Be a Co-Applicant?

Although only blood relatives can be co-applicants on a home loan, there are only a few relations that are eligible. This provides a sense of protection for the bank and helps prevent any disputes in future.

1. Spouses: The most common applicants and preferable by banks are husband and wife. 

2. Siblings: Two brothers or a brother-sister pair are eligible for being co-applicants as long as they are staying together and are also co-owners. Two sisters are usually not preferred especially if married, although you might have some luck at a few banks.

3. Parent and Son: Sons and mothers/fathers are eligible. Co-owners and only sons are given preference.

4. Parents and Daughter: Unmarried daughters and co-owning the property are given preference. Minors, friends and relatives are not eligible.

Rights of a co- applicant

The co-applicant retains certain rights such as the right to access loan details, monitor repayments, and enjoy tax benefits as per the loan agreement. 

Decision Involvement

Co-applicants have the right to be informed and involved in decisions that affect the home loan. This includes changes to repayment terms, loan restructuring, or property modifications that could impact the loan. Their equal liability justifies their inclusion in such decisions.

Consent Requirement

For major loan changes—such as refinancing, restructuring, or significant property alterations—banks typically require written consent from all co-applicants. This ensures that any modification to the loan’s structure or risk profile is agreed upon by all liable parties.

Benefits of Co-applying for home loans

Having a co-applicant has multiple benefits for both borrowers.

1. Increase Eligibility: To prevent your loan from getting rejected due to technical problems in the application like low credit score, inadequate income levels or too many liabilities you can ask a family member to become a co-applicant.

2. Lower rates of interest: In case of a low credit score, the bank asks to pay a higher rate of interest. If your co-borrower has a better credit score, it can reduce the interest rates significantly.

3. Tax Benefits(if co-owner as well): Applicants can claim up to 2 Lakhs in deductions every year on the EMI payable on self occupied homes. First time home buyers can claim an additional of up to 50,000 in deductions as well.

4. Improved credit score: In case of timely repayment and loan closure, both borrowers enjoy an improvement in their individual credit scores

5. Special interest rates for Women Co-ownwers: Some lenders offer a differentiated home loan interest rate for women customers, which is usually a few basis points lower than the normal home loan rates. To take advantage of the discounted interest rate, a woman has to be the sole or joint owner of the property and an applicant or co-applicant for the home loan.

Considering being a Co-applicant? These are the risks you need to know about

Being a co-applicant comes with its own set of risks. If you are considering being a co-applicant, you should be aware of the following risks and make an informed decision.

1. Liability without Ownership
Even if you are not a co-owner, the co-applicant is still liable to pay EMIs. You might face unnecessary harassment and pressure for the loan repayment.

2. Credit Score Impact
The co-applicant's CIBIL score is affected based on loan performance. This means in case of defaults, both the co-applicant’s and the applicant’s credit ratings could be affected adversely.

3. Reduced Borrowing Capacity 
Your credit limit may reduce by up to 50% of the loan value, impacting future loan approvals.

4. Operational Challenges
Managing the loan, especially in case of disputes or death of the primary borrower, can become challenging.

Conclusion

Co-applicant can give you access to higher loan eligibility and also reduce your EMI burden. They share all the responsibility as well as the benefits when you finance your home. A co-applicant gives you huge leverage in terms of ease of access to a home loan and low risk factors. Including a co-applicant in your home loan is a smart financial move that can work to your advantage!

Frequently Asked Question

Can you add a co-applicant later?

Yes, although it's not an easy task. It may require refinancing the loan, new documentation and lengthy procedures differing from one bank to another.

Does My Co-Applicant's Credit Score Impact Approval?

Yes, a higher credit score would result in improved chances of getting your loan approved.

Can a co-applicant be removed from a Home Loan?

Yes, removing a co-applicant from a Home Loan is possible, though the process demands agreement from all parties involved and adherence to the lender's(bank) criteria.