Want to take a home loan but your dream house costs much more than what your income justifies? Have you considered taking a joint loan? You can do so with your spouse or a family member.
You may just get what you want.
Read on.
Why a joint home loan is a smart option
1. Get a higher amount sanctioned
The home loan company will ensure your Equated Monthly Installment is not more than 35% to 40% of your net take home.
Let's say your take home is Rs 35,000. If you take a band of 35% to 45%, that means you will be doling out Rs 12,250 to Rs 14,000 as EMI.
If you club your income along with your spouse, the amount is immediately doubled.
Let's say your spouse adds the same amount to your income. Now your total take-home pay is Rs 70,000. That means you can afford an EMI of between Rs 24,500 to Rs 28,000.
2. Both get tax benefits
Home loan benefits fall under Section 80C and Section 24.
Under Section 80C, the principal repayment you make on your home loan is eligible for income deduction. The principal is the actual amount you borrow from the home loan company and does not include the interest payments.
Let's say that your taxable income is Rs 1,00,000 and you repaid the home loan principal of Rs 40,000. Your taxable income drops to Rs 60,000 (Rs 1,00,000 - Rs 40,000).
The limit under Section 80 C is Rs 1,00,000.
Under Section 24, the maximum amount of interest that can be deducted from your income is Rs 1,50,000. As a result, your taxable income decreases by that amount.
Let me explain with an example.
Salary income: Rs 3,50,000
Interest payment on home loan: Rs 1,60,000
Taxable income = Rs 3,50,000 (income) - Rs 1,50,000 (maximum limit for interest on home loan) = Rs 2,00,000
Interest payment: The maximum limit of Rs 1,50,000 on interest paid will apply individually to both of you (ie the total deduction will be limited to Rs 3,00,000).
Principal repayment: The tax benefits on the principal will be split between the two. It now falls under Section 80C, where the limit is Rs 100,000 for each of you.
3. How the tax benefits are split
The tax benefits for loan repayments will be split in the ratio of the share in the home loan. Let's do it with an example.
Cost of the apartment: Rs 10,00,000 (Rs 1 million)
Loan: Rs 6,00,000
Downpayment: Rs 4,00,000
Ownership share: 60% (husband), 40% (wife)
Amount to be brought in by husband: Rs 6,00,000
Actual contribution by husband: Rs 2,00,000
Husband's share in the loan: Rs 4,00,000
Amount to be brought in by wife: Rs 4,00,000
Actual contribution by wife: Rs 2,00,000
Wife's share in the loan: Rs 2,00,000
You should enter into a simple sharing arrangement with your spouse where you state the share of the loan.
A suggested draft is provided here. You can do it on a stamp paper.
4. How the payment can be split
Some spouses open a joint bank account and make payments from there. However, the bank is unlikely to give each of you a separate certificate, but you can make two copies of the certificate and submit it in your individual Income Tax returns along with the formalised share agreement.
Sometimes, spouses consider giving proportionate cheques for each EMI. Home loan companies are unlikely to accept proportionate payment of each EMI from both since their internal systems do not provide for accepting two cheques for the same EMI.
A better option would be to pay, say, eight cheques from the husband's account and four from the wife's.
Do note. Each tax benefit has to be shared in proportion to each one's share in the loan. One spouse cannot claim the interest benefit and the other the principal repayment benefit.
Issues to be considered
1. What if your spouse does not have a salaried job?
As long as your spouse has a regular and consistent source of income, the home finance company will take it into account. The co-applicant's income need not be salary based.
It could be earnings from tuitions or tailoring.
What the home finance company will insist on is regular income tax returns being filed every year by your spouse.
2. Not married?
Besides the husband-wife relationship which is considered for co-applications for home loans, the parent-child relationship is also considered.
In this case, you can ask one of your parents to be a co-applicant, if they are working and can help you get a bigger loan.
In some cases, the home loan company may even agree to two brothers, though it is not common. However, they will not agree to two sisters or even a brother and a sister. The reason being that even if the brothers get married, they will bring in thier wives and live as a joint family. But sisters usually get married and move away.
Friends and relatives are also not an option.
You can request the finance company to include your fiancée's income. They may do so but will not disburse the loan till after the marriage.
3. Both must be owners
All home loan companies insist that all co-owners be co-applicants.
But the reverse is not necessarily true. All co-applicants need not necessarily be co-owners.
However, to get the tax benefits, you just cannot be a co-applicant. You must be an owner or co-owner.
If you are neither the owner nor the co-owner of the apartment, you will not be eligible for any tax benefits on the loan repayments.
