Thing to Keep in Mind When Co-borrowing a Home Loan

Many potential homebuyers can face difficulties when applying for a home loan owing to unaffordable property prices, especially in a city like Mumbai. This is when co-borrowing a home loan offers some respite. A lot of dual-income couples opt for joint loans to fulfil their home-owning dreams, thus becoming co-owners of the property. 

A joint home loan does not only come in handy when you have inadequate funds, or your income is not commensurate with the property price as per the lender. It is also useful when you are unable to meet loan eligibility or have a low credit score. Family members, especially married couples, co-borrow housing loans.

Here are a few things to keep in mind when co-borrowing a home loan: 

Co-borrowing A Home Loan Is A Huge Responsibility

You cannot randomly co-sign a home loan – it needs adequate time and deliberation from your end. A home loan is a huge responsibility that sticks with you till the end of the tenure or till it is paid off. Knowing the financial standing of the primary borrower is very important before signing up for this. It does not matter that the person is family; emotions should not steer this decision. Chances are you will know the person very well, and they will be family, but this financial commitment will fall on you; hence, you should know your commitments and role associated with this loan. You must contemplate the possibility of something going wrong with the borrower, shifting the entire repayment liability onto you. 

Pick Your Co-Borrower Prudently

A family member or close relative that co-owns your home with you or has a legitimate source of regular income can be a co-borrower in your home loan. For example, your son, father, spouse, unmarried daughter, brothers etc., are a few authorised co-borrowing arrangements. However, friends, sisters, and distant or non-blood relatives are not allowed as co-borrowers. Even though the relationship with your co-borrower will be very solid, be cautious when choosing them. You need to consider the possibility of a divorce or dispute in the future. Thus, it would be best if you were prudent while choosing and not let emotions cloud your decision-making. In addition, there should be an understanding that in the case of an unfortunate event, who becomes liable for the balance repayment? 

Verify The Co-Borrowers Loan Eligibility

When you opt for home financing, both the loan borrowers need to fulfil the loan eligibility criteria for the loan to be sanctioned. Thus, you must check the co-borrower’s eligibility before taking the loan. A co-applicant with an excellent financial reputation and a flawless repayment history can improve your loan eligibility, resulting in favourable loan terms and conditions. You should refrain from choosing a co-borrower with a poor credit profile. Check the co-borrower's CIBIL score, income, repayment capacity, and commitment level to the home loan. 

Opt For A Home Loan Insurance Cover

When you are co-borrowing a loan, you need to know that if your co-borrower is unable to live up to their end of the financial repayment commitment, the entire EMI load will fall on you. In the case of any unfortunate mishap or demise of the co-borrower, the repayment obligation will need to be met. Insurance against your home loan acts as a safety net in this scenario. Both the co-borrowers should opt for a term plan to mitigate the financial risk associated with death or opt for insurance against the home loan. 

Avail Tax Benefits 

If you are co-borrowing a home loan and you are also the joint owner of the home, you can avail of various tax benefits on this loan. Check the details of the same in the Income-tax Act. Each home loan co-borrower who also jointly owns the property can claim tax benefits of up to Rs 2 lakh under section 24 of the Income Tax Act. You can additionally claim tax deduction benefits of up to Rs 1.5 lakh each under section 80C against principal repayment every year. 

At the end of the day, you need to weigh the risks that come with the responsibility of co-borrowing a loan. Getting a home is everyone's dream, but it is also a substantial financial commitment. It would be prudent to check red flags and evaluate your co-borrowers financial standing before making any long-term commitment. Be thorough with the terms and conditions, check your loan partner's CIBIL score and be sure to have an exit strategy in place.