Benefits of having a co-applicant while buying your first home

December 26, 2020 . Financial Planning . 10 min read

Purchasing a home is a huge decision, and most often, it is a joint decision of the family, especially a husband and wife. It holds as much an emotional value as it has an economic relevance. Thus, joint ownership of a house is the best bet. It not only increases the emotional bond of possessing something together but also gives some great financial benefits. Let’s have a look at all the reasons for adding your spouse as a co-applicant while purchasing a home.

1. Stamp Duty

Adding your wife’s name as the first owner of the property helps in the reduction of stamp duty, which is quite a sizable chunk of the total home amount. This has been done to encourage an increasing number of women to own property. 

In fact, in many states, the stamp duty amount for registering a house is much more for a male than a female. For instance, in Haryana, a woman has to pay 6%, while a man has to pay 8% stamp duty. Similarly, in Delhi, a woman pays only 4%, but a man pays 6%. However, if the property is owned jointly, they have to pay 5%.

2. Ease of getting a home loan

One of the most significant advantages of having a co-applicant in buying a home is to apply for a joint loan. For instance, if both the husband and wife are working, the lender will consider the co-applicant’s income separately while assessing the repayment capacity, which will help get a higher loan amount. Thus, you can buy a bigger house in your preferred location.

Also, if you have a woman co-applicant for the loan, the interest rate would be a few basis points lower than the standard home loan rate. However, to avail this benefit the woman might be required to be both the co-owner of the property and the co-applicant of the home loan.

3. Repayment of loans

Repayment of loans becomes more comfortable and faster if two people are repaying the EMIs. This also offers better terms of the loan for the borrower. For instance, the larger amount of down payment you make, the lesser is the home loan amount. So it is best to pay up about 20% of the property value as a down payment. This becomes possible when there is a joint loan and two earning members to pay for the down payment. 

Suppose payment of the down payment is a challenge. In that case, you can always approach HomeCapital, India’s first Home Down Assistance Program (DPA), and get 50% of the down payment amount at zero interest rate.

4. Tax Benefits

In addition, taking a joint home loan will give you double tax benefits as both entities will get benefits from the home loan, provided they are the co-owners of the property. However, these tax benefits will be in proportion to the contribution towards repayment of interest and principal.

Under section 80C of the Income-tax Act, the overall tax exemption for home loans is Rs 1.5 lakhs towards the principal, and under Section 24(b) of the Act, up to Rs 2 lakh annually can be saved towards the interest paid for the home loan. With a joint home loan, you can claim this tax deduction individually, as per the ownership share.

5. Ease of succession of property

Joint ownership of property is great in terms of succession. Legally, the co-owner (which is usually the spouse) will not have too much trouble in claiming rights on the property in case of the partner’s demise. It also saves money involved in the transfer. It will only need you to do a fresh registration of the property in the co-owner’s name.

On the other hand, in the case of single ownership, succession can be time-consuming and difficult. Often unethical means are used to claim the property by people.

Conclusion

Buying a home is a dream of most people, and a lot of emotions are involved in it, but it needs to be a prudent decision too, as a lot of money is spent on this venture. Having a co-applicant for buying a new property fulfills both these desires. So go ahead and pick up the house of your choice with your partner and take advantage of all the financial benefits.