The real estate sector of India is one of the fastest-growing sectors of the country and is expected to contribute approximately 13% of the total GDP. Various government-mandated schemes are working towards the realisation of this target by boosting the supply of housing and providing income tax waivers. Major financial institutions offer a joint home loan facility on such credits as well to make housing loans more affordable.
Housing sector of India at a glance
- 50% quarter-on-quarter rise in new housing launches was witnessed between April and June 2018.
- 8.09 million houses were sanctioned to be built in May 2019 under the Pradhan Mantri Awas Yojana.
- 25 basis point deduction in the repo rate was announced by the governor of RBI in April 2019 to increase credit availability. This directly reduces the home loan interest rate levied by major financial institutions.
The booming housing sector in India is further boosted by the provision for joint home loans that offer higher tax benefits and dilute the repayment burden among co-borrowers. Nonetheless, there are several clauses associated with such joint loans which have to be analysed carefully to reap the maximum benefits.
Things to know about a joint home loan
- A credit score of co-borrowers are considered
CIBIL scores of both/all co-applicants are taken into account during the approval of such home loans, Irrespective of the ownership division of the property. Individuals are usually required to possess a credit score of 750 or above to get their loans sanctioned via major financial institutions.
Also, any defaults on EMI payments on such loans by one joint owner create a negative impact on the average credit score of all co-borrowers. Henceforth, co-borrowers should use an EMI calculator to ideally plan their finances for such loans.
- The income of all applicants are considered
Salary slips (in case of employed borrowers) or financial statements (for entrepreneurs) have to be duly submitted with the respective financial institution. Such documents are carefully analysed by lending NBFCs to ensure co-applicant individuals have sufficient income backing to meet monthly liabilities of EMI payments on time. Several other factors can affect your home loan eligibility as well, such as outstanding loans, FOIR, etc.
Several other documents are also required for verification purposes. A general idea about the same can be gained from the home loan eligibility calculator provided by major lending institutions.
- Property ownership
In case of the untimely death of a co-owner, the percentage of property owned by him/her is distributed among his/her family members, provided no will was attested. Such inheritance rules might lead to adverse situations if proper advances are not taken beforehand. It is advisable for joint borrowers to have a proper financial will which explains the distribution of assets to avoid such situations.
- Tax benefits
Since a joint home loan has the financial backing of all co-applicants, the total loan amount sanctioned is of a relatively higher value as well. Such high-value credits come with the maximum tax benefit on a joint home loan, wherein individual income spent on EMI payments is eligible for tax waivers.
An income tax waiver of Rs. 1.5 Lakh on principal payments and Rs. 2 Lakh on interest payments can be claimed under Section 80C and 24(B) respectively. Each co-borrower can avail of this benefit. So, for instance, if two individuals avail a joint home loan, then total deduction amounts to Rs. 3 Lakh on principal and Rs. 4 Lakh on interest annually.
Such things must be known by applicants about tax savings when they take a home loan.
A joint home loan can be financially beneficial in many aspects, through higher credit sanctions and tax benefits. Nonetheless, property ownership divisions and repayment methods on such home loans should be kept in mind as they can affect future credit availability.