What is the key difference between co-borrower, co-owner, co-applicant, and co-signer of a Home loan?

When applying for a joint home loan, you might get confused with the terminology. Co-borrower, co-owner, and co-applicant are the terms that are used for certain individuals simultaneously during a home loan application. Understanding the key differences between these terms is quite important for loan borrowers.

Who can be a co-applicant on a home loan?

If you are planning to go for a joint home loan, a co-applicant can apply for it along with you. The co-applicant must be a blood relative, such as a son or an unmarried daughter. Two brothers can apply for a joint home loan, but the combination is not allowed in the case of a sister-brother or sister-sister. On the other hand, a joint home loan can also be applied by a husband-wife, father-son, or mother-son combination. Co-applicants who apply for a house loan at the same time as the main borrower bear joint responsibility for loan repayment.

Do the co-owner and co-applicant have any rights or legal share in the property?

The co-applicant and co-owner are two different concepts. The co-owner has a legal share in the property, and he/she owns the property as per the government registry records. On the other hand, a co-applicant has no right to the property. If the co-applicant is also the co-owner, then he/she will have legal rights to the property.

Also Read: Looking for a home loan? Here's what you need to know.

What are the benefits of being a co-applicant for a home loan?

• Smart increase in the home loan principal amount – Let's explain this part with a typical example. Suppose that you applied for an individual loan for 5 lac but the actual need for a home loan is 10 lac. Applying for a home loan with a co-applicant, say a wife/brother/parent, will be eligible to upgrade the principal sum amount based on the credit scores of both parties.
• Saving Tax – A co-applicant may claim a tax rebate of up to 1.5 lac under section 80C of the income tax act. Furthermore, tax benefits can also be claimed by a co-applicant under section 24B under the circumstances of the property occupied within three years from the date of the home loan.
• Attractive Interest Rates – Banks/Home loan lenders provide attractive interest rates on the home loan based on the credit profiles of both you and the co-applicant.

Also Read: Personal Loan or Credit Card Loan – Which one should you opt for and when?

Who could be a co-owner of a home loan?

As the terminology is self-explanatory, a co-owner is an individual who possesses a legal share of the property for which the home loan is taken. Both burden and benefits of the home loan are borne by the co-owner who shares the loan. This means, that in the case of a default, the owner and the co-owner both are responsible and liable for the loan.

Who could be a co-borrower in a home loan?

First, let us understand the legalities and obligations of being a co-borrower on a home loan. A co-borrower has to pay back the loan in case the primary applicant fails to do so. Suppose the primary borrower fails to repay the home loan due to uncertain circumstances. In that case, the responsibility to repay the home loan amount comes solely on the shoulder of the co-borrower.

Eligibility criteria for being a co-borrower in the home loan are:

1. He/she should be an immediate relative or spouse.
2. He/she can't be a minor.
3. In the case of the primary borrower's sudden death, all responsibility to repay the home loan falls on the co-borrower.
4. A co-borrower in a home loan should've income proof and the capability to repay the loan in case the responsibility of the loan falls on him/her.

Also Read: How to maximize tax benefits under a joint home loan?

When does a co-signer come into the picture for a home loan?

Generally, when the primary borrower fails to meet the eligibility criteria of the home loan with a lower credit score, the co-signer plays a vital role in getting the loan approved by the lender. The higher the credit score of a co-signer, the more eligible the home loan becomes. It lowers the interest rates and modifies numerous terms and conditions in favour of the borrower. The equated monthly instalments (EMI) on the home loan repayment are the responsibility of the primary owner to pay. In the case of a payment default, a co-signer is equally responsible for the loan repayment.

Factors to be considered before being a co-signer for a home loan are:

1. No tax benefits are available for a co-signer.
2. No right over the property on which they are signing for approval of the loan.
3. Chances are reduced for any future loan approval and credit eligibility.
4. Lowers the CIBIL score.

Conclusion

Now that you understand the terms associated with a joint home loan application, you can understand the terminology and the various duties of the co-borrower, co-signor, co-applicant, etc. 

Also Read: Home loan: Why it makes sense to increase the EMI or make partial prepayments