You can apply for a home loan in various capacities – as a co-owner, co-borrower, co-applicant, or co-signer. It is important to understand the difference between these terms before you decide in what capacity you will put your name on the home loan. Each of these roles will have different legal and financial obligations towards the repayment of the home loan, which makes it even more important to understand it in detail and decide accordingly. Here is what you need to understand about each of these home loan terminologies.
Co-owners of a home loan have a legal share in the property that is on par with the main borrower of the home loan. Co-owners of a home are also sometimes mandated by banks or other lending institutions to sign up as co-borrowers of a loan. This means that in most cases, the co-owner of the property will also be the co-borrower and co-applicant of the home loan. However, an important distinction has to be made in that not all co-applicants on a home loan will be co-owners of the property.
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A co-borrower plays as important a role as the primary borrower in the legal and financial ramifications of paying back a home loan. While both have an equal responsibility in repayment of the loan, if the primary borrower is unable to repay the home loan, for some reason, then the responsibility to pay back the home loan falls solely on the shoulders of the co-borrower. However, tax benefits on the home loan can only be availed by the co-borrower if he is also a co-owner. It is not necessary that a co-borrower of a home loan needs to be the co-owner of the property either.
There are some points to keep in mind when becoming a co-borrower or requesting someone to be a co-borrower of a home loan. These are as follows:
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.
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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.
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