Owning a house is a dream for many and also a big milestone to achieve. But due to rising prices of real estate, it becomes difficult for an individual to fulfill their dream and buy a house. But what if two or more members of a family can jointly own the house, and the liabilities of the loan are equally divided? Sounds relieving, right?
This article will help you understand the meaning of a joint home loan, along with its benefits and tax implications that one must know before opting for it.
Understanding Home Loan
In order to buy a residential property, two or more people, typically close family members, take out a joint home loan. All applicants share equal responsibility for loan repayment under this arrangement, and they usually end up co-owning the property. The applicants’ combined income improves their loan eligibility and makes obtaining a larger loan amount simpler.
It is a cost-effective choice for people who intend to split the burden of homeownership because each co-borrower is able to claim tax benefits on both principal and interest repayments.
Key Features:
- Greater Loan Eligibility: The total income of all applicants is taken into account, which raises the approved loan amount.
- Shared Repayment: By splitting EMIs among applicants, applicants can experience less financial strain.
- Joint Ownership: To receive tax benefits, all applicants must be co-owners of the property.
- Flexible Applicant Options: Spouses and immediate family, like parents, siblings, or earning childre,n may apply, but eligibility depends on the lender’s policy.
- Joint Liability: Even in the event of a default, each applicant bears equal responsibility for loan repayment.
Eligibility Criteria:
- Who Is Eligible to Apply Together?
- Spouse
- Parents
- Siblings
- Kids (if they’re earning)
- The need for ownership
- The property must be jointly owned by each co-applicant.
- Only those who are co-applicants and co-owners are eligible for tax benefits.
- Proof of Income:
- To determine their ability to repay, all applicants must provide legitimate income documentation, such as IT returns.
- Credit Rating:
- All applicants have a better chance of being approved and receiving better interest rates if they have a good credit score (usually 700+).
Important Advantages of Getting a Joint Home Loan
Now, let us look at the benefits:
1. Greater Eligibility for Loans
The bank takes into account the combined income of both applicants when you apply with a co-applicant, such as your parent or spouse. This raises your chances of receiving a larger loan amount, which can enable you to purchase a larger or better home that might have been unaffordable if you applied on your own.
2. Equitable Financial Accountability
You can divide the EMI burden with a joint loan, which makes repayments easier to handle. Both applicants contribute rather than one person paying the entire monthly installment, which relieves financial strain and aids in better monthly budgeting.
3. Increased Probability of Loan Approval
Having a co-applicant with a solid financial profile can increase your chances of getting the loan approved if your income or credit score is lower than average. When multiple people are accountable for repayment, lenders perceive a reduced risk.
4. Financial and Emotional Stability
For families or couples, buying a house together can be a common objective. In addition to fostering mutual accountability for the loan, a joint home loan strengthens emotional and financial bonds by fostering a sense of shared ownership and commitment.
5. Possibility of Higher Interest Rates
Women applicants and those applying jointly with a woman co-owner, such as a spouse, often qualify for preferential lower interest rates from banks. Additionally, lenders may offer more favorable rates if your combined income and creditworthiness reduce their risk, ultimately saving you money.
Important Tax Implications to Consider
Joint home loan involves multiple applicants, so it becomes important to understand the tax implications.
1. Tax Benefits Are Only Available to Co-Owners
All applicants who wish to take advantage of the deductions under Sections 80C and 24(b) must be:
- Co-owners of the property
- Participating actively in loan repayment
2. Proportionate Withholdings
According to each person’s ownership and loan repayment share, tax deductions are claimed. Clear documentation of this should be made at the time of purchase.
3. Tax Advantages
Benefits are available only during the building phase; post-possession tax benefits are not available. Also, it can be claimed only after the house is occupied.
4. In case the Property is Under Construction
If the house is still being built:
- Beginning in the year of occupancy, interest paid during construction may be claimed in five equal installments.
- Until occupancy, no 80C principal deduction is permitted.
Bottomline
The conclusion can be drawn that a joint home loan is a good way of fulfilling the common interest of owning the house by sharing the benefits and liabilities. The co-owners can be parents or spouses, or children, in case they are also earning. This removes the burden from one person and fairly divides it among co-owners.
However, it is important to note that the credit score of all the co-owners will matter in this case and can affect the overall amount issued and credibility.