Whenever you apply for Home Loans, you hear these terms frequently, co-owner, co-applicant, co-borrower, and guarantor. What are the differences between the terms, if any?
Co-owner – The co-owner is the person having a share in the property.
Co-applicant – The co-applicant is a person who applied for the bank loan jointly with another person.
The co-applicant need not necessarily be the co-owner of the property, but the co-owner has to be a co-applicant to the loan in any case.
Co-borrower – You can use this term interchangeably with co-applicant. On the approval of the loan, the co-applicants become co-borrowers.
Guarantor – The concept of a guarantor is different. The guarantor need not be a co-owner or a co-applicant. Banks insist on a guarantor if they are unsure of the borrower’s ability to repay the loan.
Usually, the banks resort to demanding payment from the guarantor only in case of default on the part of the principal borrower.
Let us now see who can be co-applicants and what their responsibilities are. We shall also look at the points to ponder before you sign as a co-applicant for a third party loan.
- Nowadays banks insist on a co-applicant when you Apply for a Home Loans. If you are a co-owner of the property, you necessarily have to be a co-applicant for the Home Loan. But, the converse is not always necessary.
- Banks look at the income and stability of employment/business of the applicants before approving Home Loans. If one applicant does not meet the required income criteria, the banks ask for a co-applicant. Under such circumstances, the co-applicant has to be the spouse, father or mother, son or unmarried daughter. Some banks consider the brother as eligible to be a co-applicant.
- The liability of the co-applicant is co-extensive with that of the principal borrower. It does not matter if the co-applicant is the co-owner of the property or not. The bank has the right to demand the payment of the instalments from all borrowers irrespective of whether they have a share in the property.
Who can be a co-applicant and under what circumstances?
Usually, banks accept the following Home Loan co-applicant combinations:
• Spouse – It is the most preferred combination of all
• Father and Son – If there is only one child, this combination should not be an issue, especially if the father is the owner of the property. In case there are more children, the banks insist that the son has to be the owner of the property. It helps to avoid legal disputes that can arise at a later stage.
• Parents and unmarried daughter – The daughter necessarily has to be the owner of the property. The banks do not include the income of her parents for calculating her home loan eligibility.
The banks do not consider these combinations as eligible to be co-applicants:
• Parents and married daughters, brother and sister, sister and sister. However, if they are co-owners of the property, they necessarily have to be co-applicants. Otherwise, they have to execute a No Objection Certificate in favour of the applicant.
• Banks are also cautious while dealing with two brothers as co-applicants. It can create problems for the banks at a later stage. However, if they are co-owners of the property, they have to be co-applicants.
What do you deduce from the above combinations? We can say that co-owners necessarily have to be co-applicants in any case. Now, let us see the points to ponder when you sign as a co-applicant for a third party loan (you are not the co-owner of the property).
• If everything runs smoothly and the borrowers discharge their liabilities on time, there is no problem at all.
• In case of default, the bank has the right to demand the payment of the instalment from the co-
applicant irrespective of whether the co-applicant has a share in the property or not.
• In case of death of the principal applicant, it becomes the responsibility of the co-applicant to repay the loan instalments. The legal heirs of the deceased applicant have a responsibility as well, but the banks prefer to follow up with the co-applicants rather than the legal heirs. The legal heirs usually come into the picture only when the banks enforce the provisions of the SARFAESI Act 2002. Therefore, as a co-applicant, you could end up paying instalments for the property over which you do not have any right.
• If you think that you can stop repaying the instalments, you are wrong. The banks can approach the courts and attach your properties towards satisfaction of its dues. It is in addition to their rights to bring the mortgaged property to sale.
Therefore, you have to be very careful before you sign on the dotted line as a co-applicant. You are not just providing your income as a supporting factor towards calculating the Home Loan eligibility of the principal borrower and owner of the property.
A fewlenders do not explain these matters to the co-applicants in detail. They advertise that they provide Loans for you at Home, and come to collect the signatures. However, as a co-applicant, you should be aware of your rights and responsibilities.
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