Co-Applicant in Home Loan: Benefits & Rules You Should Know

Buying a home is often a family decision, and financially, it can be a big one. To make it easier, many people apply for a joint home loan by adding a co-applicant. A co-applicant in a home loan in many cases, is a strategic move. 

Whether you're applying for a home loan with your spouse, parent, or earning child, adding a co-applicant can significantly improve your chances of loan approval. It can help enhance loan eligibility, divide repayment responsibility, and even save more on taxes.

In this blog, we’ll break down:

• Who qualifies as a co-applicant
• When it’s mandatory or beneficial
• The tax and loan eligibility advantages it brings
• Legal and financial implications every applicant should know

Understanding this role can help you make more confident decisions when applying for a joint loan.

Who Can Be a Co-Applicant in a Home Loan? 

According to most Indian banks and housing finance companies, only close blood relatives or immediate family members are allowed to become co-applicants.

Commonly Accepted Co-Applicants

• Spouse (most preferred — ensures joint income and shared repayment)
• Parents and children (particularly when the applicant is retired or young)
• Siblings (allowed in some cases, if they are co-owners of the property)

Not Accepted as Co-Applicants

• Friends, unmarried partners (in most banks)
• Extended family like cousins, in-laws (unless jointly owning the property)
• Business partners or colleagues

Important distinction: A co-applicant is liable for the home loan, whether or not they own the property. For maximum tax and financial benefits, banks often recommend the co-applicant should also be a co-owner of the home.

Is It Mandatory to Have a Co-Applicant in a Home Loan?

No, having a co-applicant is not legally required. You can apply as a sole applicant if your income and credit profile meet the bank's eligibility criteria. However, banks may require or strongly recommend a co-applicant in the following situations:

When It’s Required or Beneficial

• Low income applicants: When your income alone cannot justify the loan amount requested
• Senior citizens or retired individuals: Banks usually insist on adding a younger earning family member
• High loan amount: For loans above ₹50–₹75 lakh, banks may require an additional earning co-applicant
• Unstable income or weak credit score: Adding a co-applicant with strong income/credit helps improve approval chances
• Under government schemes: Programs like PMAY-U 2.0 encourage co-ownership (especially with a female member)

In such cases, adding a co-applicant is often the only way to qualify for the desired loan.

Benefits of Having a Co-Applicant in Home Loan

Adding a co-applicant to your home loan isn’t just about boosting your eligibility — it can unlock a series of financial, procedural, and even long-term tax advantages.

• Higher Loan Eligibility

When two applicants apply together, their combined income is considered. This allows you to qualify for a larger loan amount, especially useful if you’re aiming for a bigger property or a better location.

• Shared EMI Burden

Having a co-applicant allows you to split the repayment responsibility, reducing the monthly financial strain on a single person. This is especially helpful for young couples or single-income families.

• Better Loan Terms

Banks may offer lower interest rates when a co-applicant is added, especially if they have a high credit score or if the co-applicant is a woman (some banks offer preferential rates for women co-borrowers).

• Strengthened Credit Profile

If one applicant has a borderline credit score, a financially stronger co-applicant can increase the overall creditworthiness, making approval more likely.

Tax Benefits for Co-Applicant in Home Loan

When both applicants are co-owners of the property and co-borrowers of the loan, they can individually claim tax benefits, significantly reducing the overall tax burden of the household.

Tax Deductions Available:

• Section 80C: Deduction of up to ₹1.5 lakh per year on principal repayment
• Section 24(b): Deduction of up to ₹2 lakh per year on interest paid
• Section 80EE / 80EEA (for first-time buyers): Additional interest benefits depending on eligibility

Example:
If both husband and wife are co-owners and co-borrowers, they can each claim ₹3.5 lakh (if eligible), resulting in a combined deduction of ₹7 lakh per year.

Note: To avail tax benefits, ownership share must be clearly defined, and actual contribution to EMI should be provable.

Financial & Legal Responsibilities

Being a co-applicant in home loan also comes with equal legal and financial responsibility. Both the primary and co-applicant are jointly liable to repay the loan, and their names appear on the loan agreement.

Key Legal Points

• Joint Liability: If one borrower defaults, the lender can legally demand repayment from the other.
• CIBIL Impact: Missed EMIs affect both applicants’ credit scores, not just the main borrower.
• Property Rights: Being a co-applicant doesn't automatically grant ownership rights unless you're also a registered co-owner.
• Exit or Death: In the case of the co-applicant’s death or legal separation, the remaining party is liable for the full loan unless refinanced.

It’s important that both applicants fully understand the shared responsibility before proceeding.

Documents Required for Co-Applicants

To process a joint home loan, both the primary applicant and the co-applicant need to submit individual and combined documentation. Banks evaluate each applicant's profile before approving the loan.

Basic Documents Required (For Both Applicants)

• Identity Proof: Aadhaar card, PAN card, passport, or voter ID
• Address Proof: Utility bills, passport, or rental agreement
• Income Proof:
  - For salaried: Last 3–6 months' salary slips, Form 16, bank statements
  - For self-employed: ITRs for 2–3 years, business registration documents, financial statements
• Property Documents: Sale agreement, builder NOC, title deed, etc
• Relationship Proof: If required (e.g., marriage certificate or birth certificate)

Tip: If both applicants are salaried, submitting a joint salary certificate or a combined EMI contribution letter may speed up approval.

Disclaimer: The above section is for illustration purpose only. To know the exact list of documents required, please contact Ujjivan Small Finance Bank via email or calling the toll-free number or visit any of Ujjivan’s branches.

Common Mistakes to Avoid as a Co-Applicant in Home Loan

While adding a co-applicant can be advantageous, there are certain pitfalls that can undermine your loan process or reduce your benefits if not handled carefully.

1. Co-Applicant Isn’t a Co-Owner

For full tax benefits under Sections 80C and 24(b), the co-applicant must also be a registered co-owner of the property.

2. EMI Not Shared Through Bank Transfers

If the co-applicant isn’t actually paying part of the EMI or cannot prove it via banking records, they may not qualify for tax deductions.

3. Assuming One Applicant Is Responsible

Even if one person pays the entire EMI, both are legally liable. Banks can pursue either party in case of default.

4. Incorrect Income Declaration

Misrepresenting income or inflating eligibility by adding a co-applicant without stable earnings can backfire during verification.