Difference between co-owner and co-borrower in Home Loan
27 July, 2023
A Home Loan is a systematic and affordable way to buy the home you have always dreamt of. From applying for a Home Loan to finally living in the home of your dreams, there are quite a few things to keep in mind. It is important to do your research and make sure you're ready for it.
A loan application usually asks for a co-borrower. Depending on what capacity you sign the application, you have a different role and different legal and financial obligations to fulfil while repaying the Home Loan. But, does becoming a co-borrower mean you will also be an owner of the property? Let's learn the difference between a co-owner of a property and a co-applicant in a Home Loan.
Who is a co-owner of a property?
A co-owner is someone who shares ownership rights and responsibilities of a property along with one or more people. Co-ownership means that all co-owners have legal rights to the property, such as the right to use, occupy and transfer the property. So, if you are a co-owner of a property, you will acquire the aforementioned rights, along with the other owners.
Each co-owner may have a specific percentage of ownership, which is typically mentioned in the property documents.
Benefits of being a co-owner:
Shared rights: As a co-owner, you are entitled to the rights of using, occupying and transferring the property. You also have a right in any decision-making about the property.
Shared benefits: Any appreciation in the property's value or rental income generated is shared among the co-owners based on their ownership share. This means you benefit from the property every time it appreciates or earns rent.
Increased budget: As co-owners of a property, you can combine the income and invest in a larger or more expensive property that may have been beyond your financial capacity.
Freedom to more financing options: When multiple individuals co-own a property, they can explore various financing options together. This may include access to joint Home Loans, refinancing, or utilising the equity in the property for financial needs.
Who is a co-applicant in a Home Loan?
A co-borrower (or co-applicant) is a person who will join the primary borrower in applying for a loan. Both the primary applicant and co-applicant are equally legally responsible for repaying the loan amount and fulfilling the loan obligations. This means any default or delay in payments can impact the credit scores of both borrowers.
Becoming a co-borrower would mean you would have to repay the loan in unfortunate cases like the early passing of the main applicant, or willful default of the loan. However, having a co-borrower can have several benefits.
When applying for a loan, banks generally consider immediate relatives, such as parents, siblings and spouses. The common loan applicants are usually spouses, parents and unmarried children. Banks generally discourage including friends or distant relatives as co-applicants for a Home Loan.
It is important to note that the majority of banks and financial institutions require all co-owners to be co-applicants in a loan. But a co-borrower may not be a co-owner of the property.
Benefits of having a co-borrower:
Better eligibility: When you have a financially stable co-applicant with a good credit history for your loan, financial institutions may consider you more eligible for the loan. The income of both borrowers is considered while processing the application.
Higher chances of loan approval: Having a co-borrower with a strong credit profile and stable income can increase the chances of loan approval as lenders may consider the co-borrower's financial stability. This is especially helpful if you happen to have a lower credit score or income.
Higher loan amount: Banks may sanction loan amounts ranging from just a few lakhs to a substantial percentage of the total cost of an upscale property in a prime location if you have a co-borrower. The repayment capacity of both applicants is taken into account, which may qualify you for a higher amount.
Increased repayment flexibility: Your repayment schedule may be more flexible with a co-borrower. This enables both borrowers to utilise their income to repay the loan.
Tax benefits: Both borrowers can claim a tax benefit from the repayment of the Home Loan, as long as they're co-owners of the property. Under given conditions and limits, both parties are eligible to claim tax benefits to an extent.
Less individual strain: Having a co-applicant helps in legally distributing the burden of loan repayment, making it more manageable for both borrowers. The combined income can be utilised to meet the monthly EMI obligations, reducing individual financial strain.
A co-owner of a property is someone who has shared rights over the possession and use of the property. A co-borrower in a Home Loan is someone that the borrower shares the repayment responsibility of the loan with. Having or being a co-borrower for a loan has several benefits but some of them can only be availed if the co-borrower of the loan is also a co-owner of the property. Read the conditions of the loan properly and consult a legal expert to make sure you're thorough on your part.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. XXX Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
