Geeta had planned to renovate her house but lacked enough funds for the same. Her mother suggested availing a loan against the property to finance the renovation. When she inquired with the lender, she found that she did not meet the eligibility criteria and would need to have a co-applicant for loan approval. However, she hardly had any idea about the nuances of having co-applicants.
Ahead, understand what a loan against property is, and the essentials of having a co-applicant for the same.
What Is a Loan Against Property?
A loan against property is a secured loan where you can pledge your property as collateral and borrow funds. To avail of a loan against property, you can submit residential, commercial, or industrial property as collateral.
Who is a Co-applicant?
An individual who avails a loan with you is called a co-applicant. He/she is liable for the entire loan EMIs and other related liabilities of the loan.
Who can be Your Co-applicant?
Your parents, spouse, and siblings can be your co-applicants. However, there are some conditions attached to it.
- Spouse – You can have your spouse as your co-applicant. The collateral property can be in the name of either of the two. However, both should meet the eligibility criteria of availing a loan against property.
- Siblings – Both the applicants, primary, as well as secondary, should be brothers.
- Parents – You can take a loan against property with your parents too. A son can be a co-applicant with his mother or father and vice versa. Similarly, unmarried daughters can avail of a loan against property with their parents. However, a married daughter cannot avail of a loan with her parents. It is because there are high chances of disputes in such an arrangement as she is legally a member of a separate family. Lenders might allow a married daughter to co-apply with her parents if the property is in her name.
Things You Must Know When Having a Co-applicant for Your Loan Against Property
- A minor cannot be a co-applicant
- A friend or relative cannot be a co-applicant
- Both the co-applicants can claim tax benefits on loan against property
- If multiple people own the collateral property, all the co-owners must be co-applicants. In other conditions, the following should also be co-applicants –
- A key partner for partnership firm
- An individual who owns more than 76% shares of the same company
- If a partnership firm or company is collateral, all the partners and directors should be co-applicants
- If the income of the joint family is being considered, Karta, i.e. head of the joint family, must be a co-applicant.
Liabilities of Co-applicants in Loan Against Property
- Co-applicants are equally liable for the loan EMI payment as the primary applicant.
- Any default on the repayment amount automatically makes all co-applicants responsible.
- Typically, a co-applicant provides a guarantee for the debt. Therefore, if the borrower fails to repay the debt, the co-borrower has to pay it on his/her behalf.
Lenders allow you to take a joint loan by having a co-applicant as it helps to improve your loan against property eligibility or just for the added security. However, it is necessary to know the nuances of having a co-applicant in order to avoid any inconvenience in the future.