Co-Signer of a Home Loan

Co-signers usually come into the picture in a home loan if the primary borrower does not meet the eligibility criteria for a home loan because of a low credit rating. A high credit rating not only increases eligibility for a home loan, it also attracts lower interest rates as well as other favorable terms and conditions. Since the co-signer is being taken on board because of the lower credit rating of the primary borrower, it is essential that the co-signer is an individual with a high credit rating.

While the co-signer will not be responsible for the repayments of the Equated Monthly Instalments (EMI) on the home loan, they will be legally equally responsible for the loan repayments in case there is a payment default on the part of the primary borrower. However, they will not have any rights over the home loan amount nor will they be able to avail any tax benefits on the home loan repayments. They will also not have any title or right over the property on which they are co-signing. Being a co-signer could also reduce any future credit approvals and credit eligibility as well because the loan will be included in their credit record and have a bearing on their CIBIL scores.

A co-signer signs the home loan application along with the primary borrower, mainly when the principal borrower lacks a good credit rating. A co-signer neither has any right, title or interest in the property for which the loan is being used for, nor is he entitled to the right to use the loan amount as such directly. The co-signer is equally responsible for the loan even when not responsible for the EMI payments.

Applying for a Loan as Co-Applicant

Co-applicants have a shared responsibility towards repaying a loan. Banks insist that all co-owners be co-applicants but the reverse needn’t apply. Thus, the onus lies with the co-applicants to protect their interests if they are contributing to repaying a loan. In cases where the co-applicant is not the co-owner, failing to repay the loan, will take away their rights over the property. In some cases, a co-applicant may be a party to a home loan, to meet the bank’s eligibility criteria.

Before participating in a loan by playing any of the above mentioned roles, know your responsibilities and accountabilities beforehand. Sign any document after consulting a legal expert.

5 points to keep in mind

  1. Being a co-signer may reduce the credit eligibility of the person and may impact approval of any future credit requirement of co-signer.
  2. The legal liabilities of a co-owner are same as that of a main borrower.
  3. A co-applicant, who is not a co-owner, is not entitled to tax benefits on home loans.
  4. The liability of the co-signer under the home loan arises only when the main borrower commits a default in payment.
  5. Co-signing a loan becomes a part of co-signer’s credit record, impacting his/her CIBIL score.

Co-applicant of a Home Loan

The co-applicant of a home loan shares the responsibility of making the home loan repayments along with the primary borrower. While some banks and financial institutions mandate that all co-owners of the property should be the co-applicants of the home loan as well, it is not necessary that all co-applicants have to be co-owners. Adding a co-applicant can help to improve the chances of meeting the eligibility criteria for the loan, for the primary borrower. However, in cases where the co-applicant is not the co-owner, if they fail to repay the loan, they will not have any rights over the property. Also, co-applicants who are not co-owners cannot avail any tax benefits on the home loan repayments which the primary borrower can avail.

Co-Signer vs. Co-Applicant for a Home Loan

Although the terms are used interchangeably, they have distinct roles and responsibilities. Let’s get to know the difference between the two:

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