Home loans are high-value exposures for lenders, so to mitigate risks, lenders insist on there being a co-applicant for the loans. Before going into who can be a co-applicant, let us look at what the term co-applicant means.
Who is a co-applicant?
The co-applicant is akin to a secondary applicant to the loan. Anyone who applies for any loan along with the primary applicant is called a co-applicant, which means he/she shares an equal responsibility of repaying the loan.
The co-applicant need not be actively involved in the payment of EMIs. But in case of a default/death of the primary applicant, the co-applicant is legally responsible for clearing off the loan.
Did you know a co-applicant need not be the co-owner or joint owner of the property? Which would, in fact, mean that you can co-apply for a home loan even if you do not have ownership of the property.
Co-application is beneficial as it increases your loan eligibility.
Who can be your co-applicant for a home loan?
Going by the definition of a co-applicant, anyone can be the co-applicant. However, financial institutions allow only certain combinations of relations to apply as co-applicants. There are also specific conditions to be met in each of them.
A spouse as a co-applicant: Financial institutions prefer this the most. Even if the spouse is not the co-owner of the property, banks typically insist that he/she becomes the co-applicant. This is because it is easier for the banks/financial institutions to recover the amount in case of any eventualities like death.
Father/mother as a co-applicant with a son: Financial institutions do allow having one of your parents as a co-applicant but it comes with some conditions. If the son is applying for a loan with a parent, that particular combination is allowed without any conditions if he is the only son.
If there is more than one son in the family, then the banks insist on that son being the owner to avoid property disputes at a later date. In this case, the son could be married or unmarried.
Father/mother as a co-applicant with a daughter: Parents could act as the co-applicant only with an unmarried daughter. The ownership of the property has to be with the daughter compulsorily to avoid property disputes, should the daughter get married at a later date.
The income of the parents, in this case, is not included in determining loan eligibility. However, financial institutions do not allow parents to be the co-applicant with a married daughter.
Siblings as co-applicants: When it comes to siblings, only brothers can be co-applicants. The brothers should be residing together and intend to do so in the new property as well. Sister-sister and brother-sister combinations are not allowed as co-applicants.
Friends, co-workers as co-applicants: Friends and co-workers or any other relations like cousins, uncles or aunts are not allowed as co-applicants for home loans.
Being a co-applicant for a home loan is a huge responsibility. It is good to understand the implications beforehand if you are signing on the dotted line of the loan document.