Joint Home Loan –Myths

Joint Home Loan –Myths

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A joint home loan is a massive financial obligation. Apart from the huge EMIs that are particular to these loans, the tenures are not lesser than 15 to 20 years which means you pay the EMIs for a large portion of your life. Thus, it’s a good idea to do extensive research before you finally start submitting applications for a joint loan.
It would help if you also were wary of some of the most common myths about joint home loans that mislead borrowers:
1. Handover of Original Property Documents at the time of Home Loan Closure
A home loan is a long-term commitment. Today it might be in good relation/terms with the co-applicant/guarantor. It might not be true after few years. One of the most common myth is that if the property is under single ownership then the co-applicant has NO ROLE at the time of loan closure.
The fact of the matter is that banks insist NOC from co-applicant/guarantor at the time of Home Loan closure. It is must requirement to release the original documents. There are queries wherein borrower availed joint home loan with close relative or wife. The relationship went sour or NOC from co-applicant is not feasible. The primary borrower finds it difficult to get the original documents.
2. Signature of a Co-Applicant on Home Loan Application is “Just a Formality”
As the borrowers are becoming smart, the banks and HFC’s are becoming smarter these days. It is glad to know that borrowers are questioning banks why they need co-applicant. In some of the cases, the intent of a borrower is not to avail the joint home loan.
The DSA’s and Bank executive inform the borrower that it is “just a formality”. They only need a signature of a wife or any other relative. The borrower believes the DSA or Bank executive. The worst part is that bank handover application form with a cross sign where the main applicant has to sign and where the co-applicant has to sign. No one checks the fine print of the application. Therefore, it’s an MYTH that signature on a home loan application is just a formality.
3. A co-applicant (Non-Working/Housewife) increase Home Loan Eligibility
It is not true always. Only if the co-applicant of joint home loan is working then only home loan eligibility is increased. The problem arises when bank insists the housewife to be co-applicant of home loan. In this case, there will not be any impact on the Home Loan Eligibility of a borrower. The basic logic given by banks is that two borrowers mean higher home loan eligibility. The primary borrower fails to understand how a non-working borrower can help in increasing Home Loan eligibility.
4. A co-borrower (but not a co-owner) can claim Income Tax deduction
People think that in joint loans, only one of the co-borrowers can receive tax benefits. However, this is further from the truth as both co-borrowers are equally entitled to these benefits. This means that you and your co-borrower both get to enjoy lower individual taxable incomes. That said, you must know about Section 24 of the Income Tax Act which sheds light on taxation in joint loans.
As per Income Tax guidelines, a co-borrower can claim tax benefits only if he/she is also a joint owner of the property. This clarification is important because many times, people take joint loans to increase the loan amount and make the process easier. However, merely being a co-borrower doesn’t make you eligible for the tax benefits. You must have the ownership rights over the property as well.
5. Taking in a Co-Applicant is a Sure Shot Way of Getting a Home Loan
It’s true that it’s easier to get a home loan with a co-applicant compared to when you apply just by yourself. However, there is no guarantee that you will get approved for a loan. This is because home loans are highly risky for the lenders, even if they are secured against the homes they are availed for.
So, a co-applicant can’t help with the application if they don’t contribute to your “creditworthiness”. In other words, a co-applicant can make it easier to get a home loan only if their credit score is high and their income big enough to cover the EMIs.
6. Home Loan Protection Plan is issued to Primary Borrower in case of Joint Home Loan
It is an MYTH or an assumption that Home Loan Protection Plan (HLPP) is issued in the name of the Primary borrower in case of a Joint Home Loan. Unfortunately, in most of the cases, the borrowers don’t open and check the policy document. It is an MYTH that Home Loan insurance will be by default in the name of the main applicant.
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