Joint home loans: What you should know

Before opting for a joint home loan with your parents or spouse you must first understand the implications of this loan.

A home of one's own is an aspiration that most of us strive for and a home loan is usually the biggest financial liability in an individual's life that needs to be carefully considered. Sometimes you may want to buy a house of a greater value, but you may not be eligible for a higher amount of loan from the bank. This is where opting for a joint loan comes handy.

Understand the implications

A joint loan is usually taken to meet the eligibility criteria by supplementing the co applicant's income along with the applicants for better and higher loan eligibility. You can consider the option of taking a joint loan with either your parents or your spouse as it proves to be a more convenient approach for qualifying for a higher value loan and also manage your liabilities jointly.

While a joint home loan increases your eligibility it also distributes the liability of payment and impacts the credit history and credit score of both the borrowers. Therefore it is vital for both the parties to understand their responsibilities towards the loan and its impact on their finances.

Responsibility of the co-applicant in a joint loan

A co-applicant in a joint loan refers to a person, who applies along with the primary applicant, for a loan. This is done so that the income of the co-applicant can be used to supplement the borrower's income and increase his/her eligibility or credit limit. As a co-applicant, you are completely responsible for the loan if your partner defaults or under any circumstances is unable to pay back the loan.

Therefore a co-applicant's CIBIL TransUnion Score and report is also checked by lenders before deciding on the loan application. If a co-applicant's CIBIL TransUnion Score is low, it may negatively impact the loan application.

Both the borrowers' credit history and CIBIL TransUnion Score is impacted by a joint loan

A joint loan account is reported on both the individual's CIBIL reports. If the responsible party does not pay on time or does not pay at all, this credit behaviour is reflected on the other party's credit report as well. In addition, creditors can approach both parties for payments and collections.

On the other hand, both the borrowers' CIBIL TransUnion Scores get negatively impacted in case either of the partners default on the payments of the loan EMIs. Hence, it's imperative that both the borrowers on the loan should ensure paying the EMIs regularly on the due date, month on month.

With a fair understanding of the benefits of opting for a joint loan, given below are some Dos and Don'ts one must consider before applying for a joint loan:

• A joint loan requires both the applicants to furnish the necessary Know Your Customer (KYC) documents, bank statements, employment certificate and IT returns. Ensure that you have the most updated copies of these documents ready with you.
• Make sure you both check your CIBIL Report and CIBIL Transunion Score to understand your credit history. If your credit report shows delinquencies and defaults and you credit score is low then make efforts to improve it before you apply for the loan. This will help you avoid unpleasant surprise in the form of loan rejection.
• If you have already availed a joint loan then ensure that you keep a track of the repayments and are aware of your liabilities in the event that variations are made to the terms and conditions of the loan.
• Do not default on monthly installments as it will have a negative impact on both borrowers' credit history.

Illustration: Dominic Xavier/Rediff.com

Harshala Chandorkar is Senior Vice President – Consumer Services and Communications