Joint Home Loans for Couples

Marriage brings with it new beginnings, bigger aspirations and dreams of a perfect life ahead. The first step to your life ahead starts with setting up a home together and if this home is owned by both of you then it adds special joy to the new journey. If you are about to get married or are a newlywed couple (even not so new) then the following discussion is just for you. A little planning goes a long way in making the perfect nest for you and your loved ones,

What is a Joint Home Loan?

In a joint home loan instead of one person applying for a loan individually, two or more than that (usually up to six) people can apply for a loan. Only married couples or blood relatives like parents-children, siblings can become co-applicants. Co-applicants are responsible for repaying the loan while co-owners have a share in the property. Usually banks want all co-owners of the property to be co-applicants of the loan but the converse is not true. Though co-applicants are responsible for repaying the loan together, how they share the EMI payments depends on their choice, their individual credit score, eligibility criteria and also their tax planning.

What are the Benefits of Joint Home Loans for Couples?

For married partners the rules are slightly different than other combinations of co-applicants. When your spouse is a co-applicant, the loan term can be 20 years and upwards depending on the financial institution (FI) policy. This is subject to the retirement age of the older partner. Recently I heard from my friend Ashish, Soon to be married, Ashish was looking for a home loan to buy his first home! He seemed quite put out by the various home loan intricacies. He found that with his salary of 45,000 INR monthly, he was eligible for a home loan of 25,00,000 INR only. Even if he applied to HFCs which may provide a higher loan value – it still wasn’t enough. He soon realized that the best option for him was to take the loan jointly with his wife-to-be, because she also had a significant monthly salary. This way their joint eligibility would get them a loan of 60,00,000 INR – just the amount they were looking at! His fiancé was more than happy to be a co-owner of the property and share in the home loan burden post marriage. Now, they will wait till their marriage and apply for a joint home loan together. Just like the above situation there are instances when applying for a joint home loan offers huge benefits.

Higher Loan Eligibility:

When two people apply for a joint home loan; their loan eligibility is higher than it would have been if they would have applied in their individual capacity. At this juncture of life; most likely both partners are at the start of the careers and are likely to have limited savings.  Clubbing income of both the applicants increases their repayment capacity and financial institutions (FIs) are willing to lend them a bigger amount. A bigger budget gives the couple greater flexibility in choosing the house of their dreams.

Lower Interest Rates for Women:

If the wife can be the primary applicant; there is an option of getting a loan at concessional rates as some banks like SBI, ICICI & HDFC offer lower rates for women applicants.

Choose Primary Applicant with the better Credit Score:

Credit score is an important factor when banks screen applications for mortgage loans. When applicants apply for a joint home loan the credit score of both the applicants is considered. If the person with the higher credit score is paying a higher share of the EMI then the person with a lower score can still be a co-applicant without having a negative impact on the prospects of the application being accepted. Having said that do bear in mind that in case of a default the credit score of both applicants will be affected negatively.

Buffer against Loan Default:

A joint home loan provides a safety net to both the applicants. Each is sure that in case of any eventuality like loss of income there is a co-applicant to bear the burden of EMIs. A big liability like a home loan could prove to be troublesome if the loan is serviced singly and the steam of income stops temporarily for some reason.

Tax Benefits:

Tax benefits are one of the primary advantages of a Joint Home Loan.  Repayment of principal amount up to Rs. 1.5 lakh can be claimed as tax deduction under Section 80C. So if both partners are working and are co-owners then both can claim this amount separately. A joint loan enhances the tax deduction limit to 3 lakhs. Section 24 allows interest paid up to 2 lakhs for self occupied properties to be claimed as deduction; for co-applicants this limit is 4 lakhs altogether. Each can claim the benefit separately; for working couples falling in the high tax bracket it offers a huge advantage. For self occupied houses,

Read more about the tax benefits of a Joint Home Loan.  Both applicants have a chance of making use of this benefit for as long as the loan is serviced which could be up to 20 years or more.   To sum it up a joint loan with the life partner offers great synergy due to following reasons.

• allows the couple to share the loan burden
• improves the chances of the application being accepted
• allows the couple to avail a bigger loan
• both can save tax
• both get a safety net in case of job loss or some other financial hit

Things to Remember when Applying for a Joint Loan:

Before you actually apply for the loan, plan ahead and discuss all aspects before signing the dotted line.  Taking a loan should be done after careful planning and consideration; a few pointers discussed below can help you in just doing that: Decide about the Down Payment: Depending on the accumulated savings decide about the down payment. The banks have a standard of LTV (loan to value) ratio, so depending on the bank’s policy applicants will have to make at least 10-30% of the property value as a down payment. One could choose to pay more as down payment which will reduce the loan burden but you do not want to stretch yourself. Keep something aside for emergencies.  Joint loan applications allow you to take bigger loans but remember the loan has to be repaid so do not go overboard just because you have a higher eligibility. Focus on the Credit Score: A good credit score is crucial for getting the loan application accepted. Both applicants would do well to try and improve their credit score a few months ahead of the actual application to ensure that the application is not rejected and you can get a good deal on the loan. Discuss About the EMI share: It is important to iron out all the differences between the co-applicants so that the loan does not become a reason for discord. Each applicant could choose to pay the EMI equally or they could do so in a mutually agreed ratio. This ratio decides the tax benefits. Both can agree to pay the EMIs from a joint account held in their names together. The share could be decided based on the income levels of both partners to avail the maximum tax benefit. Reduce the Existing Debt Burden: Both partners should try and reduce their existing loan burdens if they have any. This helps them in improving their debt to income ratio which enhances their loan eligibility and will not stretch their monthly finances after the home loan installments start. Be Clear About Ownership Patterns: It is better that both partners are not only co-applicants to the loan but are also co-owners of the property. In fact some banks insist on this. Though there is no rule which makes it mandatory for the co-applicant (in case of a spouse) to be the joint owner but it makes more sense in the long run. Concessions are available on stamp duty if the registration of property is in the name of the woman, and if she is the primary applicant for the loan lower interest rates are available. Also, do keep in mind that both applicants should get separate insurance plans in their names to minimize the financial burden to the other partner in case of demise. Be fully aware of your responsibilities and benefits with a joint home loan to ensure you get the best of it. Don’t let your first home excitement be dulled by the home loan intricacies!