Joint Home Loans - Advantages
In recent times it is common for husband and wife to be joint borrowers for a home loan to enhance their overall loan eligibility.
Joint home loans with parents/children are very few. Joint home loans with siblings (brothers and sisters) are also very rare.
In fact joint home loans with friends are the rarest cases.
Advantages
Joint loans increase loan eligibility; simply because the income of the two borrowers is pooled by using pooled incomes for calculating loan eligibility, the lender in effect involves both the parties. The pooled incomes are combined to take care of all expenses including the home loan installments.
Joint Home loans - eligibility
The co-applicants, by definition have to be either spouses or close blood-relatives. Banks rarely, if ever, extend this concept of pooling of incomes to other relations/friends. Some banks allow parents and children to be co-borrowers, while a smaller number of banks allow siblings to be co-borrowers. A smaller percentage of banks allow joint loans for brothers and a more diminished number will allow two sisters or a sister-brother duo to opt for a joint home loan.
The basic premise behind laying these restrictions is that in the event of some dispute arising between the joint borrowers, the income stops getting pooled and there may be a problem in paying the loan installments.
Of course, disputes may arise between spouses close blood relatives too. Banks factor in these risks while computing the cost of giving loans.
There are both legal and tax issues arising out of joint home loans.
In legal terminology the liability to repay the loan is joint and several. In English in means that the bank has a choice to collect the loan from any of the joint borrowers for the full loan amount irrespective of any internal arrangement/understanding that the joint borrowers may have between themselves.
Tax Benefits of Joint Home Loans
Talking of tax issues, every joint home loan seeker is not eligible for tax incentives.
It is necessary to be an owner or a joint owner to claim any tax benefits. There are many cases where a husband becomes a joint borrower to enhance loan eligibility but the property is in the sole name of the wife. Another instance can be when the property is in the name of the father and/or the mother but the son is a joint borrower. Even though he may fully discharge the loan liability to the bank from his own books, he will not be able to claim any tax benefits since he is not a joint owner of the property. So just being a joint borrower is not enough to claim deductions for tax purposes on home loan repayments.
Each joint owner can get a deduction to the extent of his share in the loan. It makes sense to document the shares of each of the joint owners through some simple document right at the inception.
Though not strictly necessary, it is however advisable to keep a correct account of the liability of each of the joint owners with each of them contributing his share into a common account from where the payment to the lender can be made.
It is not advisable to change the share in the loan of each party from year to year to suit tax requirements.
If the property is self occupied the maximum limit of Rs. 1,50,000 for deduction of interest payable on a loan taken to acquire/construct the property is available individually to each joint owner to the extent of his share in the loan. In simple English it means that both of them can make separate claims upto Rs. 1,50,000 each.
Joint Home Loan Criteria
The one criteria banks insist on is that all co-owners of the property should also be co-applicants but the reverse need not be true. Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.
If you are short of funds for that dream house, joint home loan is the answer.