Purchasing a house is a one-time investment which involves proper planning and arrangements. But what if our savings are not enough to buy the house of our dreams, then should we compromise our dreams? Today home loans are offered by several banks and financial companies that make the process of buying a new house less cumbersome. But selecting the reasonable loan offer which provides savings and at the same time, the one which reduces the debt is difficult. So how do we define a joint home loan? Who all are eligible to avail this loan? Are there any tax benefits associated with this loan? Through this article, I wish to enlighten my readers regarding Joint Home Loan, Eligibility rules, and Income tax benefits.
As you go through this article, you’ll explore what exactly is a joint home loan, how to apply for it, why the joint home loan is better than an individual home loan, its features, and benefits. You will also get to know whether everyone is eligible to avail of a joint home loan or a selected few, what are the tax benefits it has in store for its applicants, the tenure for repayment, and the process to pay off the loan. So let’s invest some time to fulfill your inquisition towards Joint Home loans.
What Is A Joint Home Loan?
A joint home loan is a loan that can be availed by two or more people to purchase a house. It is mandatory for the co-applicants to be financially independent so that the debt is equally divided and repaid by each of the two. If the joint applicants of the loan are joint owners of the property, they can also boost several tax exemptions.
The co-applicant could be parents, siblings, spouses, children, friends, or business partners planning a start-up. Your co-applicant should be trustworthy and responsible enough to support you until the last penny is paid off.
Who Can Be A Co-Applicant?
While applying for a joint home loan, one must make sure that the said person will take the responsibility upon himself/herself to repay the debt along with you. Hence any individual is not eligible to be a co-applicant. A family member, spouse, close friends, and any trustworthy souls are highly preferable.
a. Parents are eligible to be co-applicants for a joint home loan as long as they are earning, and hence, in this case, the tenure will be short as they will be approaching retirement soon.
b. Siblings who are co-owners of the property can also apply for a joint home loan.
c. Working couples are highly eligible for a joint home loan as both the applicants are working, and there will be two incomes to support the debt. These couples should also be joint owners to avail of additional tax benefits.
d. Friends planning to establish a start-up can also avail of joint home loans. Regardless of this, there could be issues in the future if one of them decides to back out, then an application is filed, and his EMIs would be equally divided among the other partners.
Why Should We Avail A Joint Home Loan?
Availing a Joint Home Loan has many merits as compared to a normal home loan.
i. For instance, as more than one individual, would be applying for this loan, the combined incomes of both the applicants would be higher. As a result, the bank can offer loans of high amounts, which means that the applicants can invest in a bigger assert.
Let’s take an example if individual plans to buy an apartment costing around 50 lakhs, and he plans to take a loan of 40 lakhs, then the EMI of the loan could be around 45,000 for over a tenure of 10 years, but if the monthly salary of that individual is 40,000 then the application will surely be rejected. But if this individual decides to join another person with him to avail the loan with a decent salary of 30,000 then the total monthly income generated is 70,000, which would automatically make it feasible for the bank to sanction the loan.
ii. More tax benefits can be generated if both the borrowers are owners of the asset as well. Since both are applying for the loan, both are equally liable for repayment.
Features And Advantages Of A Joint Home Loan
a. In a joint home loan, due to the presence of more than one earning member, the combined income of the two will be higher than that earned by them individually, which implies that the bank can now sanction a loan of the higher amount, which can be utilized as an investment in a bigger property.
b. Due to more than one applicant, the bank needs not to worry if anyone of the applicants fails to make the monthly EMI payment due to unforeseen circumstances as there are other applicants with equal financial responsibility.
c. Succession and other legal issues are reduced if couples are joint owners of the property.
d. When one avails a joint home loan with its spouse, parents, or siblings, the property may be owned by the individual or both the joint applicants, and in this case, some states offer a low fee for property registration.
Necessities For Availing A Joint Home Loan
i. One cannot avail of a joint home loan with any random person. Close friends and family members who could be trusted shall be allowed to apply for this loan.
ii. Application for a joint home loan requires a minimum of two individuals and a maximum of 6 individuals. That’s the basic rule.
iii. While applying for a joint home loan, it must be ensured that both the co-applicants are employed and are drawing a decent salary that can help them easily repay the debt.
iv. If one applicant is earning and the other is unemployed, then one should not apply for a joint loan. In this case, no doubt the loan offered would be higher, but then so will be the burden to repay the same loan without any external income from the other applicant.
v. While applying for a joint home loan, both the co-applicants should be joint owners of the assert as this would facilitate them to avail of several tax deductions.
vi. Repayment of the loan could either be done through a joint account, or both the parties could distribute the EMIs among themselves and then pay off the debt.
What Are The Eligibility Rules And The Necessary Documentation?
In order to be eligible for a joint home loan, the relationship between the applicants is the first criteria. The co-applicants could be husband-wife, parent-child, or two siblings; these are considered valid relationships for a joint home loan. To be eligible for a loan
a. The person should be above 18 and below 70 years.
b. The applicant should have a minimum income of Rs. 25 thousand.
c. Should have work experience of at least 2 years.
After this, the applicants have to submit relevant documents pertaining to income, address, and identity. These documents are:
d. Permanent Account Number card (PAN CARD).
e. Identity proof
f. Address proof
g. Income proof- bank statements or salary slips
h. Property documents
i. Proof of co-ownership of the property
What Are The Fees Charged While Availing A Joint Home Loan?
i. Processing Fee:
The fee is paid to the banks or the financial companies when applying for a loan. The fee to be paid is a fixed amount made instead of undergoing tedious paperwork for the loan application.
ii. Commitment Fee:
If the borrowers fail to avail the loan within a particular period after processing, some banks levy a commitment fee that assures the borrowers that they can access the loan at the interest rate over the agreed tenure upon. Nowadays, banks do not charge this fee.
iii. Pre-Payment Charges:
If the entire loan amount is paid off before the tenure, then banks and financial companies charge this fee. The pre-payment charges could be 5% of the amount that the borrower pays before the term ends.
iv. Miscellaneous charges:
These are the other charges which are made during the application of the loan for documentation, stamp duty, and consultant charges.
Tax Benefits On Joint Home Loan
In the case of a joint home loan, several tax exemptions can be divided among the co-applicants. On availing a home loan, the applicants will have to pay monthly EMIs, including principal payment and interest rate payment. The ownership ratio is used for determining the proportion of tax deduction for each applicant.
According to the Income Tax Act, every applicant can avail of a deduction of Rs. 1.5 lakh and Rs. 2 lakh on principal and interest rates under Section 80C and 24(b).
Sections In The IT Act:
1. Section 80C
• The borrowers can claim a tax deduction of Rs. 1.5 lakh on the principal payment.
• This includes stamp duty and registration as well but can be claimed only once.
2. Section 24(b)
• A tax deduction of Rs.2 lakh can be procured on the interest rate.
• The exemption under this section is valid only if the construction of the property is completed within 5 years from the application of the loan. Else there will be a reduction of only Rs.30,000 on the payable interest rate.
3. Section 80EE
• According to this section, the first time buyers can claim an additional Rs. 50,000 deduction on payable interest.
• To avail, this benefit the home loan should not be over Rs. 35 lakh, and the value of the property should be within Rs. 50 lakh.
These exemptions are only applicable to co-applicants who are co-owners as well, and the property should be fully constructed.
What most people are not aware of is that individual applicants can avail of these tax reductions. Hence if one applicant benefits from a tax reduction of Rs. 3.5 lakhs, then both the applicants can enjoy a relaxation of Rs. 7 lakhs. This enhances the savings of the individuals and thereby reducing the heavy burden.
What if the same applicant wishes to avail of another loan to buy a second home. Will the tax exemptions still be applicable to the same individuals again?
Yes, they can avail tax deduction on the payable interest, but they should negotiate for a good interest rate.
Tax exemptions are not valid for property under construction, even if the loan amount is used to renovate the house. Tax benefit on loan for an under-construction property is not applicable if you repay the principal amount during the pre-construction period or if the loan is taken to buy the plot.
Tenure For The Repayment Of A Loan
Depending upon the applicants of the loan, the tenure can vary from year to year.
• If couples apply for a joint home loan, then the tenure can be as high as 20 years, but it is restricted to the retirement age of the older spouse.
• If the co-applicant is the parent or one of the siblings, then the maximum tenure for the repayment of the loan is 10 years depending upon the earnings of the applicants, but it is subjected to the retirement age of the older. If parents are co-applicants, then the tenure will be shorter depending upon their retirement.
The responsibility of repayment of the loan lies on both the borrower and the co-borrower. The monthly EMI payment can be made by either one of the two borrowers at a time or both of them can pay through a joint account. The borrowers have the freedom to choose the best option for repayment.
Related Frequently Asked Questions
1. Can my co-applicant be one of my closest friends?
Therefore your friends don’t qualify as co-applicants.
2. How many co-applicant can I apply for a single joint home loan?
3. What are the tax benefits on a home loan?
4. How to infer your share in the home loan?
5. Is it necessary for the co-borrowers to be co-owners as well?
6. Which bank should I borrow money from?
Therefore one must check all these charges before applying for a loan in any bank.
7. Can I prepay my loan?
8. My credit score is low so will I be able to avail a joint home loan?
9. How does availing a joint home loan vary for an apartment and a piece of land?
However, if the co-borrowers jointly own a piece of land they cannot avail any tax deductions as the house would have to be constructed on that plot.
10. What if one of the co-borrowers refuses to pay his share of the loan?
11. How much amount can I avail through a joint home loan?
12. Define pre-EMI Interest.
This interest is to be paid every month from the time the loan is sanctioned till the EMI payments start off.
13. Define a top-up loan.
These loans are generally offered at an interest rate which is less than that charged for the existing loan. The amount offered for a top-up loan is equivalent to the amount that the borrower has paid off on the existing loan.
In the modern world, with inflation on the rise, all the commodities are getting costlier day by day. As real estate prices are booming today, a simple 2BHK apartment costs no less than Rs. 25 lakhs in any urban district. Hence loans are the only solution to buy your dream home, but what if your income level is too low to avail one. Then joint home loan lets you avail of a loan together with any of your family members with a decent salary. Hence, the two combined incomes satisfy the bank’s minimum credit criteria and allow you to convert your dream into reality.
So if you are moving in with your spouse or any other family member and wish to avail of a loan, then a joint home loan is to your rescue. It will surely turn out to be the best decision of your life as it amplifies your savings and reduces the heavy burden called debt.