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Joint Home Loan – 5 Most Common MYTHS

Joint Home Loan is one of the best-marketed product by banks and HFC’s. Through Joint Home Loan banks hedge their mortgage risk. These days almost all the banks insist on Joint Home Loan even if the property is bought in a single name. Quite interestingly even if the wife is non-earning/housewife then also banks insist on Joint Home Loan. The biggest carrot to SELL Joint Home Loan is Home Loan Tax Benefits. I agree that if both Husband and Wife are availing tax benefits then it makes sense to avail Joint Home Loan else it’s a BIG NO.

Recently, one the readers of this blog complained to RBI regarding Joint Home Loan. The RBI refused to intervene. He received following reply from RBI

In this connection, the management of loan sanctioning / recovery activity, in a bank is essentially an internal management function and each bank’s Board is authorized to frame suitable policies. Banks have been advised to prepare a well-defined loan policy approved by their Board of Directors“. In other words, banks are free to frame their policies.

I discussed the pitfalls of being a Home Loan Co-Applicant in my post, Beware of Being a Home Loan Co-Applicant. This post is all about MYTHS related to Joint Home Loan. The definition of MYTH is “a widely held but false belief”. In other words, we assume it to be TRUE but it’s not. I picked up points based on the some of the common problems/difficulties faced by the readers of this blog. Therefore, it is learning and lesson for all the potential borrowers. If the bank is not willing to lend without co-applicant then you don’t have any other option but to accept banks terms and conditions. At the same time, it is imp to understand the Myths and Disadvantages of Joint Home Loan to avoid any future shocker.

Joint Home Loan – 5 Most Common MYTHS

1. Handover of Original Property Documents at the time of Home Loan Closure:

A home loan is a long-term commitment. Today i might be in a good relation/terms with the co-applicant/guarantor. It might not be true after few years.  One of the most common myth is that if the property is under single ownership then the co-applicant has NO ROLE at the time of loan closure.

The fact of the matter is that banks insist NOC from co-applicant/guarantor at the time of Home Loan closure. It is must requirement to release the original documents. I receive queries wherein borrower availed joint home loan with close relative or wife. The relationship went sour or NOC from co-applicant is not feasible. The primary borrower finds it difficult to get the original documents.

2. Signature of a Co-Applicant on Home Loan Application is “Just a Formality”

As the borrowers are becoming smart, the banks and HFC’s are becoming smarter these days. I was glad to know that borrowers are questioning banks why they need co-applicant. In some of the cases, the intent of a borrower is not to avail the joint home loan.

The DSA’s and Bank executive inform the borrower that it is “just a formality”. They only need a signature of a wife or any other relative. The borrower believes the DSA or Bank executive. The worst part is that bank handover application form with a cross sign where the main applicant has to sign and where the co-applicant has to sign. No one checks the fine print of the application. I have discussed the liabilities of a co-applicant or guarantor in detail in my previous posts. Therefore, it’s an MYTH that signature on a home loan application is just a formality.

3. A co-applicant (Non-Working/Housewife) increase Home Loan Eligibility

It is not true always. Only if the co-applicant of joint home loan is working then only home loan eligibility is increased. The problem arises when bank insists the housewife to be co-applicant of home loan. In this case, there will not be any impact on the Home Loan Eligibility of a borrower. The basic logic given by banks is that two borrowers mean higher home loan eligibility. The primary borrower fails to understand how a non-working borrower can help in increasing Home Loan eligibility.

4. A co-borrower (but not a co-owner) can claim Income Tax deduction

I highlighted this point multiple times in past. To provide good reading experience i hate to repeat any point that is already discussed on the blog but i keep getting queries in this regard. Therefore, it is important to highlight again. This scenario is common in case a parent or elderly person is applying for a home loan. In this situation, the loan cannot be approved under any circumstances without a co-borrower. In one of the case, the mother of a reader of this blog applied for a home loan. He became co-borrower as bank assured him that being a co-borrower he can claim a tax deduction. The only condition is that EMI should be paid by him. Because of over obsession with tax savings, he started paying EMI of home loan.

After two years when his ITR was scrutinized, the AO reversed all the home loan deductions claimed till date. He had to pay all the tax dues along with applicable penalties. It was a joint home loan shocker to him. Just to clarify, only a co-borrower who is co-owner can claim home loan tax benefits.

5. Home Loan Protection Plan is issued to Primary Borrower in case of Joint Home Loan

It is an MYTH or an assumption that Home Loan Protection Plan (HLPP) is issued in the name of the Primary borrower in case of a Joint Home Loan. Unfortunately, in most of the cases, the borrower don’t open and check the policy document. Recently, i came across a case wherein a housewife has to forgo the property after husband’s death. The husband died within one year of the availing home loan.

At the time of purchase, bank forcibly sold Home Loan Protection Plan. After the death when wife requested for the closure of home loan from proceeds of HLPP, she was shocked. The Home Loan Protection Plan was issued in her name. The proposal form had a signature of the husband. Therefore, it is an MYTH that Home Loan insurance will be by default in the name of the main applicant. In the example shared by me, the proposal form was filled by the insurance agent. Therefore, he filled the name of a co-borrower. Quite strange.

Words of Wisdom:

It is important for potential borrowers to understand the implications of Joint Home Loan. Personally, i am not in a favor of Joint Home Loan until unless the co-borrower/s is/are claiming income tax benefits and are co-owners. Any verbal communication from the bank has NO Relevance.

The joint home loan can have major future implications. Therefore, a borrower can evaluate all the pros and cons. There are banks and HFC’s who are willing to lend without a co-applicant or guarantor. The primary borrower can discuss all the scenarios with the bank in advance. In some cases, the bank agrees to approve the home loan without co-applicant but insist on same at later stages. It is another tactics whether intentional or unintentional, God knows.

Please note that all the points discussed in this post are applicable only if the co-applicant of home loan is not a co-owner. A co-owner has to be co-borrower else the home loan cannot be approved. You may check my post on Joint Property for more details.

Copyright © Nitin Bhatia. All Rights Reserved.

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Navneet
Navneet
8 years ago

Dear Nitin Sir, As always very informative article. Regarding point 4 please help me as there is a piece of ancestral land (which bantwara among my father and his brothers is registered in 1980 ) and now me and my father are interested in building a house on it. Father being a retired person I am interested in availing home loan by becoming co-applicant along with him . Now whether I will be able to avail income tax benefit on the loan amount or not ? (i.e what are the provisions regarding ancestral property)

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Navneet

As i explained in my post, You cannot claim tax deduction as you are not a co-owner of the property. Only solution is that your father can gift X% share in land to you before availing home loan. In this case, you can claim even 100% tax deduction if you will be paying 100% EMI. A piece of land is land and there are no special provisions for ancestral property except capital gain and taxability in the hands of a beneficiary.

Navneet
Navneet
7 years ago
Reply to  Nitin Bhatia

Thanks Sir for clarifying the issue. Please help me that how my father can give me X% share in land .

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Navneet

He can execute gift deed in your favor. A gift from father to son is tax free in India. You only need to pay stamp duty on gift deed.

Nitin Bhatia
Nitin Bhatia
7 years ago

1. I will prefer SBI. Normally PSU banks are transparent in their approach. Still you should take everything in black & white from bank.
2. Flexi EMI is possible but depends on bank. It is easy to increase EMI rather decreasing. Therefore, you should start with min EMI and then can increase at later stage.

Though it is your personal matter but personally i will not suggest house purchase at this stage. It is advisable to buy a house only after 2-3 years of marriage because of various social, legal and financial factors.

Ruchika Garg
Ruchika Garg
7 years ago
Reply to  Nitin Bhatia

Thanks sir :)

Deepak
Deepak
7 years ago

Hi Nitin,

I have purchased a flat for 32 lac in Manikonda Hyderabad. Government value is 15 lac. Builder suggested to do registration on 15 lac but pay service tax n vat on 32 lac.
Is it ok if I go with builder

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Deepak

It depends the agreement/s signed by you with the builder. At macro level, it is possible.

Rajesh dhas
Rajesh dhas
7 years ago

Hi Nithin,

Me and my friend planning to buy a land with 1100 sq.ft on Chennai for 60 lakhs by sharing 30 Lakhs each(hand cash). I want to know how to register it because we are planning to get home loan to construct it. some people saying like register it as 2 documents 550 sq.ft each in UDS terms and get a joint plan approval. So that we can get a loan individually. And some are saying like friends cannot get home loan in joint. Kindly suggest me a way to register the property and way to get the home loan only for construction.

Our plan:
1. Ground floor parking
2. 1st floor for me
3. 2nd floor for my friend

UDS 550 sq.ft each

sathuvika pushpanathan
sathuvika pushpanathan
7 years ago

Hi Nithin,

Me and my husband are planning to buy a house in chennai. We are drawing approx 55k take home each. We already have car loan 10k per month in sbi and a personal loan for 7k. We dont have any credit card. We are looking for property value around 1.5cr. I read about the pre-approved home loan in sbi. Would that be a wise decision to go with and how much will be our eliglibility? Please suggest us. Thank you in advance.

Nitin Bhatia
Nitin Bhatia
7 years ago

The eligibility will be decided by the bank but i think combined eligibility should be around 55L. You may go for pre-approved home loan.

sathuvika pushpanathan
sathuvika pushpanathan
7 years ago
Reply to  Nitin Bhatia

Thank you so much Nitin.

Faheed Khan
Faheed Khan
7 years ago

Hi Sir,My dad,mom and myself have taken a mortgage loan and my dad is the main applicant in the loam and he has passed away last year we have the home loan protection plan but in that im the main applicant and my dad is a co-applicant.Can i raise a claim?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Faheed Khan

In case of joint ownership there is always confusion on whose name the home loan protection plan was issued by the insurance provider. Ideally it should be in both the name but sometimes it is issued against one of the joint owners. You may check your insurance policy and if it was issued in your father’s name then you can invoke and request bank to pay balance outstanding against your father’s share.

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