Everyone knows that a home loan is a cost-effective way to purchase the home of your dreams.
Given the cost and length of the loan for 70 lakh home loan EMI, one person may not be able to manage the repayment on their own. You have the option of applying for the loan with a co-applicant or a co-signer for this purpose. As you must have known, a co-borrower is generally requested on a loan application. They have a distinct function and varied legal and financial obligations to fulfill while repaying the Home Loan of 80 lakh home loan EMI depending on the capacity in which they sign the application. But does becoming a co-borrower imply that the individual will also own the property?
Before applying for the loan, it is critical that you understand who can be a co-applicant or a co-signer. You can be a co-applicant, co-signer, co-borrower, or co-owner when you apply for a home loan for 70 lakh home loan EMI. Although the phrases are used interchangeably, they have unique functions and have distinct duties. While aspects like home loan interest rate and tenure get talked about at length in most of the articles, nuances such as the distinction between the co-borrower and co-owners take the backseat. With the help of this post, you will be able to understand the distinction between them which will further help you make informed decisions.
Let’s look at the distinction between a co-owner of a property and a co-applicant for a home loan.
Co-owner: A co-owner is someone who shares property ownership rights and duties with one or more other individuals. Co-ownership entails all co-owners having legal rights to the property, such as the ability to use, occupy, and transfer it. As a result, if you are a co-owner of a property, you will receive the aforementioned rights in addition to the other owners. Each co-owner may have a share of ownership that is specified in the property paperwork.
Advantages of being a co-owner:
Shared rights: As a co-owner, you have the right to use, occupy, and transfer the property. You also have a say in any property-related decisions.
Shared benefits: Any appreciation in the value of the property or rental revenue generated is divided among the co-owners depending on their ownership share. This implies you gain from the property whenever it increases in value or earns rent.
Co-applicant: A co-borrower (or co-applicant) is someone who will apply for a loan alongside the primary borrower. The principal applicant and co-applicant are both legally accountable for repaying the loan and meeting the loan terms. This means that each payment default or delay might have an impact on both borrowers’ credit scores.
Becoming a co-borrower would obligate you to repay the debt in the event of the main applicant’s premature death or willful default on the 70 lakh home loan EMI. Banks often consider immediate relatives, such as parents, siblings, and spouses, when making a loan application for an 80 lakh home loan EMI. Banks often prohibit friends and distant relatives from being co-applicants on a home loan. However, having a co-borrower might provide various advantages.
Advantages of having a co-borrower:
- Can help the primary applicant in increasing their eligibility: Financial institutions may consider you more suitable for a loan if you have a financially secure co-applicant with a good credit history. Having a co-borrower with a high credit profile and stable income might boost loan approval chances as during the time of processing the application, the income of both borrowers is taken into account. This is especially beneficial if you have a low credit score or income.
- Can help you secure a higher loan amount: If you have a co-borrower, banks may sanction loan amounts higher than what you would have received. It is because, at the time of evaluating a home loan application of 80 lakh home loan EMI, both applicants’ repayment capacity is considered, which may qualify you for a bigger amount.
- Tax advantages: If both borrowers are co-owners of the property, they can claim a tax advantage from the repayment of the 80 lakh home loan EMI. To some extent, both parties are eligible to claim tax benefits under certain conditions and limits.
- Less Individual pressure: It is because having a co-applicant legally distributes the cost of loan repayment, making it more manageable for both borrowers.
How is being a Co-Signer different from Co-borrower and co-owner?
Adding a co-applicant (or co-borrower) to your Home Loan application for 80 lakh home loan EMI improves your qualifying conditions for a larger loan amount. If you have a poorer credit rating as a principal borrower, you will be less eligible for the loan for 70 lakh home loan EMI. However, this is where the co-signer comes in; if the individual has a good credit history and a good salary, he or she can make you qualified for the Home Loan.
A primary borrower might obtain loans for 70 lakh home loan EMI with cheaper interest rates due to an increased credit score of the co-signer profile. A co-applicant shares the responsibility of the Home Loan. Because a co-applicant is one of the persons who apply for the loan alongside the principal borrower, he or she can assist in obtaining them at a favourable interest rate.
However, one must understand that a co-signer is not responsible for paying your 70 lakh home loan EMI; nonetheless, the individual will be accountable for loan repayment if you default. As previously stated, the co-applicant’s duty in a Home Loan is to share the obligation of loan repayment with the principal borrower.
If a co-applicant is also a co-owner (has a legal interest in the property), the individual is eligible for tax benefits. Tax benefits cannot be obtained if the applicant is not a co-owner. A co-signer, on the other hand, is not eligible for any tax benefits.
Summing up the difference
A co-owner of a property is someone who has joint possession and use rights to the property. A co-borrower in a home loan is someone with whom the borrower shares loan repayment responsibility. Only when the Home Loan borrower fails to make the loan repayments does a co-signer have to pay.
There are various advantages to having or being a co-borrower for a loan, but some of them are only available if the co-borrower is also a co-owner of the property. Read the loan terms carefully and consult a legal expert to ensure you’re being thorough.
It’s worth noting that most banks and financial institutions need all co-owners to be co-applicants on a loan. A co-borrower, however, may not be a co-owner of the property.
So we are saying,
The most significant financial liability is applying for a home loan. If you are the primary borrower, you must exercise caution when selecting a co-applicant or co-signer.