JOIN USAlthough live-in relationships are widely accepted, when it comes to loan applications, such couples still have problems to encounter, writes Bienu Verma Vaghela.
Aconversation between two women in a local train aroused my curiosity, as it revolved around buying a flat. There is nothing unusual about two friends discussing about buying a home. However, when I figured out that one of them was a banker from whom the other woman was trying to learn the nitty-gritty of getting a home loan.
It was interesting to know a banker’s perspective on home loans. As their conversation progressed, it took an interesting turn. The young lady in question was planning to buy a flat on loan to move in with her live-in partner. She wanted to know if she can apply for a joint home loan. Just when her banker friend was about to answer, the train reached her station and she got off. However, I couldn’t stop thinking about the said conversation. As the society is gradually accepting such relationships, it is imperative that such couples also get access to credit. But is that really happening?
Going by the experience with banks, I was apprehensive about this situation receiving any favours from the lenders. Clearing my doubts on the matter, Harsh Roongta, CEO, Apnapaisa says, “Co-borrowing can pose a problem for couples in a live-in relationship or even same sex couples, as these relationships are not socially or legally recognised. In fact, these loan applications are treated as two friends jointly applying for a loan. The reason for reservations in sanctioning such joint loans is that if some dispute arises between the two borrowers, the income stops accumulating and in consequence the payment of EMIs also gets affected. Which is why, banks do not allow live-in couples or even friends to become joint borrowers,” he explains.
Not only this, lenders are quite selective about who the co-borrower is, while granting loans. One cannot jointly take a home loan with just about any person. Joint home loans can be obtained by an applicant along with his or her spouse, parents or own siblings. Some banks allow brothers to take a joint home loan, provided both of them are co-owners of the property. A co-owner is a person who has a share in the property and a co-borrower is one who is liable to pay the loan amount. In some instances, banks insist that co-owners of the home are also co-borrowers in a joint loan.
Co-borrowing not only enhances your eligibility for loans, but you also get to share the down payment, as banks calculate eligibility by clubbing the co-borrowers’ incomes together. In such cases, banks insist on making a relative your co-borrower. The basic premise behind using pooled incomes for calculating eligibility is that both the parties will actually be combining their incomes and paying off all the expenses (including the home loan installments). However, banks are selective in extending this concept of pooling of income to the relatives other than spouse, siblings, parents and children.
Apart from eligibility, there is another advantage in the form of tax benefits, which can be claimed by both the co-applicants individually, under Section 80C and Section 24 of the Income Tax Act. The condition in claiming the rebate is that co-borrowers should also be co-owners of the house. The joint account holders (owners of the property) can claim income tax benefits individually. The housing loan benefits that fall under Section 80C and Section 24 make each borrower eligible for a maximum deduction of Rs one lakh for the principal repayment and Rs 1.5 lakh for the interest payable on the home loan. However, if you are just a co-borrower of a loan and not a co-owner in the property, you cannot claim the tax rebates. On the other hand, if the co-owners are equal owners of a property, but the share of the loan is in the ratio of 2:1, they can avail the tax benefits in the same ratio as that of the loan’s share. Generally, banks do not accept split EMI payments.
This way, I have had my fill on co-borrowing and now, I look forward to meeting my co-passengers of the local train some day.