Taking a Home Loan With Your Sibling – Yay or Nay?

January 10, 2022


The slashed real estate prices and falling interest rates have offered exceptional opportunities for destined property buyers. At this time when the interest rates are all-time low, you can avail property at alluring discounts. Additionally, people are selling out the properties to lower the EMI burden. Worth mentioning point is, people have observed pay cuts which lead to the resale of the property. The real estate analysis depicts, in the procedure of finding a home, approximately 70 percent of the homebuyers usually end up purchasing a house, which is 20 percent more from the planned financial budget.

The arrangement of additional finance can be daunting, and you need to handle it cautiously. Homebuyers consider home loans as a prime source of funds. Availing home loans helps you to buy a home that is out of your planned budget. When you apply for home loan, banks can’t approve an amount more than monthly income after deducting the expenditure. Your financial stability decides the approval of home loan rates and home loan EMI. If alone, you are not eligible to avail specific amounts, you can count on a joint home loan. With a joint home loan application, there are increased chances of accessing higher loan amounts at lower home loan rates.

Enumerable young investors are willing to grab the opportunity of buying their own house at rock-bottom rates. The downside is they don’t have access to the required income source to purchase the desired property through a housing loan. For such instances, counting on joint loans coupled with parents or siblings will be an ideal choice. Although, in some cases, such arrangements gave rise to disputes as well as complications. But still, it is considered as the optimal route for property purchase.

If you are amongst those who face rejection of loan applications because of lesser income sources, then here are the things that you must know about a joint home loan.

What Do You Mean by Joint Home Loan?

When two or more applicants jointly avail of a home loan, for enhancing the housing loan eligibility, it is termed as a joint home loan. All joint applicants are equally responsible for the repayment of the loan amount. Equal financial responsibilities are shared amongst them. Applicants’ family members such as spouse, siblings, or parents can be the joint applicant to avail of a home loan. When you rely on joint home loans as your finance solution:

  • You can avail the higher amount of home loan and tax benefits
  • Get concession in interest rate by choosing women as co-applicant

Who can be a Co-borrower?

You can choose your immediate member of the family as a co-borrower. The only condition to be fulfilled is the co-borrower should be one amongst salaried employees or self-employed. You can choose any from the below-mentioned ones as your co-borrower:

  • Spouse
  • Guardians’/Parent
  • Siblings

Although, apply for home loan, only after knowing the basic eligibility criteria of a joint home loan.

Eligibility Criteria to Avail Home Loan with Sibling

The joint home loan eligibility is governed by the actual relationship among the co-borrowers. People can apply for joint loans only if they fulfill a specific set of eligibility criteria. Almost all banks and financial institutions accept only spouse, parents, and siblings as an authentic co-applicant. The number of maximum co-borrowers for one home loan is limited to six persons. There are times when lenders insist that applicants must be the co-owners of the property for being the co-applicant in the joint home loan. Thus, it is important to go through the ownership clause of the agreement for easily qualifying the loan application. When you have a co-borrower with better financial stability, you get a chance to grab home loans at lower home loan rates together with reduced home loan EMI.

Features of Joint Home Loan

  • Increased home loan eligibility
  • Easily purchase property in a preferable location
  • Access to more amount to buy a bigger house
  • Double the tax benefit
  • Home loans at lower rates through women co-applicants
  • Sharing of repayment amount amongst applicant and co-applicant

Documents Required for Joint Home Loan

To avail of a home loan with your sibling, you both will need to submit the notable document to the lender, on which the loan approval will entirely depend. The applicant and the co-applicant will have to submit the following documents:

  • KYC Documents
  • Documents of Identity Proof
  • Residence Proof
  • Income proof such as Bank statements or Salary Slips
  • Proof of the property co-ownership
  • Original Property Documents

Advantages of Joint Home Loans

If you are thinking of applying for a home loan together with your siblings here are the advantages, you can avail yourself by applying for a joint home loan.

Major Tax Benefits

When you count on a joint Home Loan, the applicant, as well as the joint applicant, comes by individual tax benefits being paid for the same property. Each home loan borrower can easily avail an amount up to INR 2 lakhs in terms of tax deduction. Thus, when you choose joint home loans you unlock the door to double tax benefits. The borrower can avail of this benefit as per the Income Tax Act 1961 under – Section 24(b) on the paid interest amount.

Furthermore, both the joint applicants can take advantage of the INR 1.5 lakh tax deduction under – Section 80C on the principal repayment amount. An essential point to grab tax benefits is the property’s construction should be finished.

Easily Transferable

Life is uncertain and you can’t predict the sudden death of anyone. The same applies in the case of a loan borrower. If due to any misshapen any of the property co-owner dies, the loan can be easily transferred to the other individual. The borrower doesn’t have to go through any legal procedures to transfer the entire loan to his account. In a normal case, you will have to submit certain documents including the legal heir together with the death certificate of the other co-borrower. Whereas, when it comes to joint ownership, the other applicant can transfer the property on his account by making a fresh registration on his name. But the procedure has to be carried out in the presence of a lawyer.

Access Larger Home Loan Amount

When you apply for a home loan in terms of a joint application, banks and financial institutions drive the eligibility for the applicants. When you add a co-borrower to loan a specific amount it adds as a plus by reducing the involved repayment risk. So, we recommend you apply for a housing loan jointly with your sibling, especially when you plan for a big purchase.

Disadvantages of Joint Home Loans

A coin has two faces and the same applies to every existing thing. If there are pros of a certain product then there are cons too. So, let’s have a look at certain points you should refer to before applying for a joint home loan with your sibling.

Sale Issues

The future is unpredictable, and if any conflict occurs in near future between the joint applicants, then selling the purchased property becomes highly difficult. Both the applicants need to agree on the selling decision else the investment of one applicant will be stuck. It will lead to sale issues and can even result in disputes. Both applicants need to have the same goals with the aligned property.

Unpaid EMI = Disputes

During the entire course of home loan repayment, both the applicants need to pay their part of the EMI contribution in a timely manner. If any of them failed to do so it will be counted as default payment. Additionally, it will result in a damaged credit score and will adversely affect the borrowing capacity. Loan experts advise you to buy property insurance along with term insurance for securing the home loan borrowers against future liability.

Types of Joint Home Loans

Joint home loans can be broadly classified into three categories based upon the co-applicants. Go through each one of them to understand which category is best-suitable as per your financial requirement. Joint Home Loan for Couples:

If a working couple jointly applies for a housing loan, it makes sense. The practical chances of loan approval are quite high as both the applicants will be having an income source for loan repayment. You can easily apply for more amount of loan than you could have availed as an individual borrower. Furthermore, both the members will be able to access income-tax benefits. To take the maximum advantage of the income-tax deductions, consider availing of a housing loan jointly. Through a couple of joint home loans, you can get a repayment period of up to 20 years.

Joint Home Loan with Parents

If the applicant doesn’t have a sufficient income source to loan the desired amount, then he/she can easily add parents as the co-applicant. You have to make sure that your parent is co-owner of the property to avail of the home loan. The critical factor for Joint Home Loan with Parents is loan tenure. Parents’ age might act as a barrier to avail of such loans. The tenure is limited to the co-borrower’s (parents) age of retirement. Thus, the drawback of this category of home loans is you will have to pay higher home loan EMI.

Apply Jointly with Siblings

Through joint loans, the borrower can grab the opportunity of co-owning the property with their siblings. Apply in a joint way and access higher home loan amounts. Both of you can enjoy income tax benefits individually for the paid interest and principal component.

Who Can and Cannot Avail a Joint Home Loan?

As discussed, only the applicant’s spouse/ parents/ siblings can be considered as a co-applicant for joint loans. Whereas, friends, the applicant’s sister, business partners aren’t eligible for the role of co-owner as well as co-borrower within a joint housing loan.

Share of Ownership

The bank and financial institutions are more bothered about the applicant’s income, and it further helps to depict the overall amount that can be disbursed. Regardless of the share within the property, each co-applicant is supposed to be equally liable for repaying the loan amount with specified interest. Hence, in case one borrower defaults in EMI payment, another one becomes liable for compensating the loan amount.

Contrary to the tax exemption, both the applicants can avail of income tax deduction based upon their share in the property. This is derived from the signed property agreement. If nothing has been mentioned within the property agreement, the tax department considers it as an equal share. So, both the applicants can file returns of their contribution to the loan repayment. Furthermore, the overall exemption amount can’t be more than the payment made towards the bank.

Tax Benefits of Joint Housing Loan

Being coupled in a joint loan application, the co-applicants are permissible to apply for tax benefits for the payable principal as well as interest component.

Each co-borrower can claim up to INR 2 lakhs as tax benefits towards the interest amount under – Section 24 of the Income Tax Act. In total both the co-applicants can avail an amount up to INR 4 lakhs as a tax deduction. The point to note is the tax deduction amount can’t surpass the actual amount of interest paid to the lender. During initial loan repayment years, you pay more interest components. This act allows you to avail maximum possible benefits on the interest component.

Well, the claim is not limited to the interest component as the principal component is equally important. The Income Tax Act’s Section 80C allows the borrower to claim the principal amount in terms of deduction. Similar to the interest rate case, the applicant and co-applicant can assert a maximum amount of INR 1.5 lakh (individually).

Repayment of Home Loan with Siblings

Each co-applicant is permitted to offer ECS mandate of their bank account for the purpose of repayment of the availed housing loan. When you apply for a home loan, you can ask only one to pay the amount and the other can repay the amount to the one who pays it off in terms of monthly EMIs. In this case, only one applicant will offer the ECS mandate of the account and the rest will pay it to the one with the ECS mandate.

The banks and lenders offer borrowers flexible repayment options until you pay monthly installments in a full and timely manner. Irrespective of the opted ECS mandate, all co-applicants are equally responsible for the repayment of the loan. Additionally, you can calculate the home loan EMI, if you know the home loan rates via the home loan EMI calculator.

Wrapping Up

Taking a home loan with a sibling is effortless through joint home loans. Clear up the eligibility criteria and apply for home loan altogether. All you need is to be the co-owner of the property and a reliable source of income. So, it is definitely a YAY!! When it comes to availing of home loans with siblings. You can avail higher amounts at lower home loan rates and reduced home loan EMI by putting forward a co-applicant with an excellent credit score.

Tushar Gautam is a content writer inclined to enlighten his readers about the world of finance through Urban Money.

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