Co-Owner, Co-Applicant, Co-Borrower – Differences, Benefits Explained

co-borrower, co-applicantPurchasing your dream home is a big lifetime decision. Often the property or the finances are shared, which gives rise to different terms like co-owner, co-applicant, co-borrower etc. Often people confuse among them and use them interchangeably. In this blog post, we will clarify the differences between such terms and explain how these can be used to derive financial benefits.

Definitions

Let us first define the terms.

Co-owner: Co-owner is the person who has a legal share in the property. Minor persons cannot be co-owners in a property as they are not eligible to enter into contracts as per Indian law.

Co-applicant: The co-applicant is a person who applies for the sanction of the loan along with the main borrower. Co-applications is primarily done to increase the loan eligibility by supplementing the borrower’s income. Sometimes he is also referred as joint applicant.

Co-borrower: Co-borrower is the person, who shares the responsibility of the repayment of the loan. He is actually deemed to have borrowed the loan along with the main borrower and is liable to repay the share of the main borrower in case of his death or inability to make payments. Co-borrower and co-applicant are the same person in most of the cases and these terms can be used interchangeably.

Conditions in the Loan Application

Different banks and lenders have different conditions in cases of joint ownership and joint applications. However, a few common guidelines followed by almost all lenders are mentioned as below.

  • Almost all banks insist that all the co-owners of the property must be the co-applicants also.
  • However the reverse is not true. It is not necessary that all the co-applicants are also the co-owners of the property. For instance, the property might be in the sole name of the husband, while the loan application can be both by husband and wife jointly.

Benefits of Co-Application

Co-application of a home loan often entitles benefits for both the applicants. Some of them are mentioned as below.

  • As the income of both the co-applicants is considered to arrive at the loan eligibility amount, you can become eligible for getting a higher loan sanctioned and purchase a bigger house.
  • Co-application reduces the risks for the lender and thus act as a safeguard to ensure the repayment of the loan. Therefore, the chances of sanction of the home loan application are higher in case of co-application.
  • Tax benefits are extended to both the applicants. It is to be remembered that, the tax benefit in case of a joint loan, can be extended to all the borrowers only if they are also the co-owners. Further, the tax benefits are extended only in the proportion of their ownership rights. If any of the co-applicant is not the co-owner, then the tax benefit will not be applicable to him.

Who can be the Co-Borrower or Co-Applicant in the Loan Application

Not all persons are eligible for the coming co-borrower or co-applicant. Banks have specific guidelines and they ensure that only following relationships become the co-applicant is in a loan application.

  1. Spouse: A person can co-borrower with his spouse. The property may not necessarily be in the name of both. From the lenders perspective, this is an ideal situation and they happily sanction such cases. Live-in relationships or an unmarried couple living together are not eligible for a joint loan.
  2. Father and son: The case is very simple when the father has only one son and both are applying to be the co-borrowers. Anyone of them can be the main owner of the property. However in case the father has more than one son, then the lending institutions usually see that the son is the primary owner of the property. This is because in case the father is the primary owner, then after his death his other son may also become legal heir to the property and may demand their share causing legal disputes. To avoid this, banks see that the son is the primary owner, which will avoid any potential future dispute.
  3. Father and unmarried daughter: Both are eligible to become co-borrowers. However it is ensured that the property is in the name of the daughter only. This is ensured to avoid any future disputes after the marriage of the unmarried daughter. Further, the income of father is not considered for determining the loan eligibility.
  4. Mother and unmarried daughter: This case is also treated similar to the case of father and unmarried daughter.
  5. Father / mother and married daughter: Father or mother of a married daughter are not eligible to become co-applicant in a home loan.
  6. Brother and brother: Two brother can eat daily become co-borrower in a home loan provided that they are presently living together and they are expected to continue to live together in the new property as well.
  7. Brother and Sister: Not allowed to become co-applicants.
  8. Sister and Sister: Not allowed to become co-applicants.
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Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.