Considering a joint home loan? Here’s how to apply

Purchasing a house is a major accomplishment in an individual's life and it frequently requires significant financial support. One approach to make this process more manageable and beneficial is by considering a joint home loan.

A joint home loan is a type of housing loan in which multiple individuals share the financial responsibility. It allows immediate family members, such as spouses, parents, and siblings, to apply for the loan together. Let’s examine the numerous advantages of opting for a joint home loan and why it could be the perfect option for individuals aspiring to become homeowners.

Enhanced affordability: Combining incomes enables you to meet the criteria for a higher loan amount, potentially providing access to desirable properties.

Lower interest rates for women: In certain cases, women may qualify for more favourable home loan interest rates compared to men. Hence, having a woman as a co-applicant for a joint home loan can potentially secure the loan at more advantageous interest rates.

Reduced monthly payments: Sharing the repayment responsibility alleviates the financial pressure on each party involved, substantially enhancing household cash flow. This enables the allocation of funds towards other financial objectives or the establishment of an emergency savings cushion.

Tax benefits: In numerous countries, including India, both partners are eligible to claim tax deductions on interest and principal repayments, if they are co-borrowers of the loan. This can result in considerable tax savings over the duration of the loan.

Joint accountability: While it may present potential drawbacks, jointly shouldering the responsibility for mortgage payments can cultivate a spirit of teamwork and dedication towards attaining homeownership collectively.

Possibly improved interest rates: Certain lenders may provide slightly reduced interest rates for joint home loans in comparison to single-applicant loans. This is due to the indication of a stronger ability to repay the loan with two incomes.

Who can be joint home loan applicants?

Undoubtedly, a joint home loan can make homeownership a more attainable and financially responsible choice for couples. However, it's important to note that this benefit is not applicable to all types of relationships, whether familial or non-familial.

The incorrect belief that different kinds of relationships, such as friendships, romantic partnerships, interdependent connections, and casual acquaintances, automatically make individuals eligible to apply for a home loan together is fundamentally flawed. This misconception arises from misunderstandings about loans and debt

Typically, lenders restrict joint home loan applicants to close relatives including spouses, parents & children (with limitations) or even siblings. Do note, the specific eligibility criteria may vary among lenders.

Points to remember before applying

A joint home loan offers an attractive option for different demographics, but it's important to carefully consider the pros and cons before moving forward. Although there are benefits to choosing a joint home loan, it may not be the right choice for everyone. Before committing to a loan, applicants must have a solid financial position and a positive credit history.

Maintaining open lines of communication about finances is crucial for successfully managing the loan together. Also, choosing a joint home loan involves a long-term commitment. Ideally, applicants should have plans to reside in the property for a significant period of time.

Those who should reconsider a joint home loan are couples with uncertain relationship statuses. If there is a chance of separation in the future, managing a joint home loan can become complicated. In addition, for individuals with significantly different financial situations, it may be more advantageous to apply for something individually if one person has a much higher income or significantly lower credit score.

What banks look at before approving joint home loans

Lenders evaluate numerous factors to assess your eligibility and suitability for a home loan before approving the same. Here are some key aspects they consider:

Credit history and score: A high credit score (typically above 700 or the equivalent in your region) signifies responsible credit management and suggests a lower risk of default for the lender.

Income and employment stability: Lenders require evidence of steady income and employment. Typically, they scrutinise pay stubs, tax returns, and tenure of employment to gauge your repayment capability for the loan.

Debt-to-income ratio (DTI): This metric contrasts your monthly debt commitments with your gross monthly income. A lower DTI suggests that you have more income remaining to easily manage your loan repayment.

Down payment size: A sizable down payment (typically a percentage of the property value) reduces the loan amount required and showcases financial dedication to the acquisition. While certain lenders may provide special programs for smaller down payments, they often entail stricter criteria or higher interest rates.

Loan-to-value ratio (LTV): This metric compares the loan amount to the appraised value of the property. A lower LTV (indicating borrowing a smaller proportion of the property value) suggests reduced risk for the lender. They may establish a maximum LTV threshold for loan approval.

Property details: Lenders will assess the location, condition, and value of the property you intend to purchase. They may also mandate an appraisal to ensure the property value aligns with their criteria.

Additional financial assets: Maintaining a robust savings account or possessing other investments can reassure the lender of your financial stability and enhance your application.

Opting for a joint loan can offer several benefits, including an increased borrowing capacity, shared responsibility for repayment, and potential tax advantages. Ultimately, the choice of whether to pursue a joint home loan is personal and heavily influenced by the borrowers’ financial objectives, repayment capabilities, and their perception of debt.

Atul Monga – CEO & Co-Founder, BASIC Home Loan