Applying for a joint loan is one of the most convenient ways of increasing your home loan eligibility. However, there are some other points that you need be aware of before applying for such loans. Let’s take a look at some of the facts about Joint Home Loan:
Eligibility of a Co-Borrower
Only a few relationships are allowed to become co-borrowers. These loans are only provided to spouses or blood relatives, such as parents and children. Although most banks do not prefer siblings to become co-borrowers fearing future property disputes, some may allow joint home loans to brothers if they happen to be co-owners of the property.
Typically, sisters are not allowed to avail joint home loans because of the risk of not contributing to the repayment after their marriage. Similarly, brother-sister and unmarried partners are also not eligible for joint home loans. However, an unmarried daughter and her father can jointly apply for a home loan if the property is in the name of the daughter.
In case of a joint home loan, all co-applicants are required to go through the same set of KYC documentation. Each of them is required to submit their ID proofs, income proofs and address proofs. If two or more co-applicants are co-owners, then a proof of the co-ownership of their property has to be submitted. The banks will check the documents of each co-applicant; the entire documentation process may take more time than a loan taken singly.
Shared liability for Repayment
The primary borrower and the other borrowers are equally liable for the repayment of the loan. The ratio of the ownership of their property or their share in property does not matter. In case of a default, the lender will proceed against all the borrowers of the loan. Thus, co-borrower(s) may come under serious pressure in the event of death of a contributing co-applicant. This will especially hurt a co-borrower who is not a co-owner of the property. To avoid such a scenario, get yourself and your co-borrowers adequately covered by a term policy.
This is another major advantage of availing joint home loans the income tax benefit claim can be proportional to the actual repayments made by joint borrowers subject to total claim not exceeding amount actually paid and per assesse ceiling fixed by Income tax act. (2 lakhs for interest under Section 24, 1.5 lakhs under Section 80C per assessed) However, remember that for availing these tax benefits, your co-applicant has to be a co-owner of your property. Moreover, the tax benefits can only be claimed according to the ratio of your and your co-borrower’s repayment contribution.
Benefits of Joint Home Loan
- Increased loan eligibility
- Buying home in a preferred location
- Enhance the budget for a bigger house
- Maximum tax benefit
- The lower interest rate for women applicants
- Share the repayment-Equal liability of repayment.
Additional benefits for Woman Co-Applicant
a. Low stamp duty charges
Many home buyers buying property jointly are not aware of this lesser-known deduction available under Section 80C, besides the extra concession generally provided to women co-applicants. Few states generally provide a concession with 1-2 per cent per cent on stamp duty charges during the registration of the property in the woman’s name, either as single owner or as co-owner. The stamp duty, registration expense and other costs directly related to transfer of property are qualified to be claimed as tax deduction under Section 80C, with a maximum capital of Rs 1.5 lakh in a financial year.
However, note that this deduction must be claimed during the same year in which you, along with your wife had incurred those expenses.
b. Concessional interest rates
Whereas taking a joint home loan with a lady co-borrower like your own wife, mother or sister, can fetch alluring concessional interest rates of ordinarily up to 5 basis points (i.e 0.05 per cent) lower than standard rates from numerous moneylenders.
Pre-requisites before claiming Tax Deductions
a. Co – Borrower should also be co-owner of house property
Most home buyers intending to take a joint home loan are unaware of this condition while claiming tax deductions under Section 80C and 24b. In order to claim separate tax benefits on the joint home loan, the co-borrower has to compulsorily be the co-owner of the property. Being just a co-borrower and not co-owner of the concerned property would deprive you of the associated tax benefits, even if you have been contributing towards the EMI repayment.
b. Construction of the property must have completed
Taking home loan for purchase of under construction property is a common practice amongst home buyers. Even though the possession for such property would only be received at a later date, home buyers need to begin home loan repayment with immediate effect. Tax benefits of such repayment would also be eligible for claim starting from the financial year in which construction of the property is complete, and not during the pre-construction period.
However, interest repayment during pre-construction period can be claimed as tax deduction for five years (i.e., in five equal instalments), starting from the year of obtaining possession. But keep in mind that the maximum amount that can be claimed as deduction for interest repayment remains capped at an overall limit of Rs 2 lakh per financial year.