How Your Credit Score Gets Affected When You Apply for a Joint Home Loan
Almost every person wishes to buy their own home at some point of time in their lives. Buying a house of your own is a big milestone in your life. It is a way of finally settling into a place that you can call ‘your own’. Home Loans are a huge financial liability, though. After all, they are long-term loans. A typical Home Loan can last between 15 and 30 years. With property prices skyrocketing in the metros, your dream home can seem a little out of reach. So, even if you earn well, you may not be able to afford the house of your dreams. But there is a way to overcome this. You can apply for a joint Home Loan. Your spouse or a close family member can be part of it. But before you go ahead, you should find out about a few things. Important among these is how joint Home Loans can affect your credit score. Read on to find out more about joint Home Loans.
What is a Joint Home Loan and Why Do You Need It?
A joint Home Loan is a Home Loan where there are two or more borrowers. The property and the EMI are divided between the borrowers. When do you need to apply for joint Home Loans? Do this when your income or credit score is lower than your loan amount. When there are many borrowers, the combined incomes of the borrowers come into play. Then, you can get the loan amount that you need. It is advisable to take a joint Home Loan with your spouse or a very close family member. This way it is more convenient to manage the repayments together. When you calculate Home Loan EMI, you will find having a co-borrower helps to reduce your debt burden.
What is the Responsibility of the Co-Applicant?
The co-applicant applies for the loan along with the primary loan applicant. The bank or Non-Banking Financial Company (NBFC) will check their credit score. If your co-applicants’ credit score is low, then your loan application will suffer. But your credit score may be low. Then, your loan applicants’ credit score can help.
Credit Score and Joint Home Loan
The bank or NBFC takes into account the borrower’s credit history and their credit score. Only then does it sanction the joint Home Loan. Now, suppose one of the borrowers misses a payment. Both parties bear the brunt on their credit scores. Say, one party defaults completely on their EMIs. Then it is not only his or her credit score that reduces. The co-borrower’s credit score will reduce as well. It is the responsibility of the co-borrower to pay off the outstanding loan amount if one party fails to do so.
What You Need to do
- Reduce your expenditure by having a co-borrower. The co-borrower can be a close relative or your spouse.
- Make sure that they understand their full liability as co-borrower.
- Check the credit history and credit score of your co-borrower. This way, you will be aware of their spending and repayment habits.
- Be wary of taking a joint Home Loan with someone who has a poor credit score.
- It is important that both borrowers on a joint Home Loan repay Home Loan EMIs without delay and default.
- Keep track of repayments that both you and your co-borrower make.
- Try to make sure that your co-borrower is listed as the co-owner of the property.
- Keep track of the terms and conditions of the loan in case of variations by the bank or NBFC.
- Keep track of the housing loan market. Transfer your loan to another lender if you get favourable terms and conditions. This would include reduced interest rate and even a top-up loan.
- If your co-borrower is your spouse, in the event of a divorce, both parties have to continue paying the EMIs. Otherwise, credit scores for both will suffer.
Plan for a Joint Home Loan Wisely
Are you planning to apply for a joint Home Loan? Do your homework first. Analyse your credit score and your potential co-borrower’s credit score. Work out the EMI repayments between the two of you. Ensure that both of you can pay the EMIs on time every month. Taking a joint loan is the best way to reduce your debt burden. All that matters is for both parties to be diligent about the repayments.