As a co-owner, co-borrower, co-applicant, or co-signer, you can apply for a house loan in a variety of ways. Before deciding in what capacity you will put your name on the home loan, it is critical to grasp the differences between these phrases.
Each of these jobs will have various legal and financial obligations when it comes to repaying the home loan, making it even more critical to understand it well and make informed decisions. Here's what you should know about each of these home loan jargon terms.
Co-owner of a loan
Co-owners of a house loan have a legal portion of the property equal to that of the primary borrower. Banks and other lending organisations may require co-owners of a home to sign up as co-borrowers on a loan. In most circumstances, this means that the co-owner of the property is also the co-borrower and co-applicant of the house loan. However, it's crucial to note that not all co-applicants on a house loan will also be co-owners of the home.
Co-borrower on a loan
In the legal and financial repercussions of repaying a home loan, a co-borrower is just as significant as the principal borrower. While both share equal responsibility for loan repayment, if the principal borrower is unable to repay the debt for whatever reason, the co-borrower is completely responsible for repayment. However, the co-borrower can only get tax benefits on the home loan if he is also a co-owner. A co-borrower of a house loan does not necessarily have to be a co-owner of the property.
When becoming a co-borrower or requesting someone to become a co-borrower on a house loan, there are a few things to bear in mind. The following are some of them:
A spouse or a close relative should be a co-borrower.
A minor cannot be a co-borrower.
If the principal borrower defaults on payments or dies, the co-borrower is responsible for the entire home loan repayment.
In order to pay the home loan if the principal borrower fails to do so, the co-borrower must have a regular and stable income stream.
Examine the distinctions between co-borrower, co-owner, and co-applicant.
A home loan co-applicant
Along with the primary borrower, the co-applicant of a house loan has the duty of making home loan repayments. While some banks and financial institutions require that all co-owners of the property also be co-applicants for the house loan, this is not always the case. Adding a co-applicant can boost the primary borrower's chances of meeting the loan's eligibility requirements. If the co-applicant is not the co-owner, however, they will lose all rights to the property if they do not return the loan. Furthermore, co-applicants who are not co-owners are not eligible for the same tax benefits as the primary borrower on house loan repayments.
Co-signer on a loan
Co-signers are typically used in the case of a house loan when the primary borrower does not match the qualifying requirements due to a poor credit rating. A good credit score not only improves your chances of getting a home loan, but it also means reduced interest rates and other advantageous terms. Because the co-signer is required due to the primary borrower's poor credit, it is critical that the co-signer has a good credit rating.
While the co-signer will not be responsible for the house loan's Equated Monthly Instalments (EMI), they will be legally responsible for the loan repayments if the principal borrower defaults. They will, however, have no rights to the house loan amount and will not be able to take advantage of any tax benefits on the home loan repayments. They won't have any ownership or rights to the property on which they're co-signing, either. Because the loan will be listed in their credit record and have an impact on their CIBIL scores, being a co-signer may reduce future credit approvals and eligibility.
Comments