What are the benefits of applying for a home loan in Joint name?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Sumit Sharma had planned to buy his home from a reputed developer in the locality that he was satisfied with. The cost of home was rupees 75 Lacs. Sumit had arranged for the 20% payment (Rupees 15 Lacs) from his pocket. For rest of the payment, he approached the bank to avail home loan.

Before sanctioning Rupees 60 Lacs, bank asked Sumit for following documents:

1. Salary slip/Form 16 A
2. A copy of the first and last pages of the ration card or a copy of PAN/Telephone/Electricity bills as a proof of residence
3. Details of investments (FD certificates, shares, any fixed asset, etc. or any other documents supporting the financial background of the borrower)
4. A photocopy of LIC policies with the latest premium payment receipts (if any)
5. Passport size photographs (as applicable)
6. A copy of bank statement for the last six months
7. Age proof
8. Financial details of guarantor, wherever guaranty is required

Having produced the above documents, Sumit was confident that his loan application will be approved. However, to his surprise, bank rejected his loan application on account of low monthly salary.

As a thumb rule normally most of the banks/HFCs (Housing Finance Companies) have a provision that one should be left with at least 50% to 60% of income after repayment of monthly loan installment, to take care of the family expenditures.

Sumit’s monthly salary was Rupees 80,000. For which he was eligible to avail about 40 Lacs Rupees as loan amount from his bank.

Cost of home: 75 Lacs Rupees
Upfront money arranged by Sumit: 15 Lacs Rupees
Loan eligibility: 40 Lacs Rupees
Remaining amount: (75-15-40) = 20 Lacs Rupees

Now, how will Sumit arrange for the remaining 20 lacs rupees?

To this, Sumit’s bank manager suggested that he can make his spouse as joint applicant for the home loan. Sumit’s wife was employed for last 3 years. Her net monthly income was Rupees 60,000. By combining the monthly income of both Sumit and his wife, bank was willing to sanction the loan amount of Rupees 60 Lacs. Finally, Sumit was able to buy his dream home jointly with his wife.

So, what are the benefits of applying for home loan in joint name?

1. As can be seen from Sumit’s case above, applying jointly for home loan increases the amount of loan that bank can sanction for people to buy home.
2. Moreover, banks or HFCs feel comfortable to sanction the loan in joint name because of greater security for the lender in view of the option to take recourse to either of borrowers.
3. Besides improving your loan eligibility and enabling you to get a larger amount of loan, co-borrowers are eligible for deductions under the Income Tax Act. Both the borrowers can claim deduction, to the extent of their share in the loan, under Section 80C of the Income Tax Act 1961 for repayment of loan, subject to the condition that they are joint owners as well.
4. Section 24(b) grants deduction for interest up to Rs 150,000 per year on a loan for acquiring a residential house. This deduction is available individually to both the co-borrowers. To be eligible for the deduction, the home loan needs to be taken in joint names, property be owned and financed jointly in equal shares, with both spouses being joint owners.

All the co-borrowers or joint-borrowers are jointly and severally liable to repay the loan availed from the bank/HFC, subject of course to the terms and conditions stipulated in the loan agreement. Thus, before volunteering to become co-applicant in a loan transaction, it is advisable to properly understand the implications of such decision.

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