Difference between co-owner and co-borrower in Home Loan

A Home Loan is a systematic and affordable way to buy the house you have always wanted. From applying for a Home Loan to finally living in the abode of your dreams, there are quite a few things to keep in mind. It is important to research and ensure you're ready for it.
When applying for a home loan, you'll often be asked to include a co-borrower. The role and responsibilities of this co-borrower can vary based on what capacity you sign the application, affecting both your legal and financial obligations during the repayment process.
However, being a co-borrower does not necessarily mean you will be a co-owner of the property. Let's explore the key differences between a co-owner and a co-applicant.

A co-owner is someone who shares ownership rights and responsibilities of a property along with one or more people. Co-ownership means that all co-owners have legal rights to the property, such as the right to use, occupy and transfer the property. So, if you are a co-owner of a property, you will acquire the rights mentioned above along with the other owners.
Each co-owner may have a specific percentage of ownership, typically mentioned in the property documents.

Benefits of being a co-owner

• Shared rights: As a co-owner, you are entitled to the rights of using, occupying and transferring the property. You also have a right in any decision-making about the property.
• Shared benefits: Any appreciation in the property's value or rental income generated is shared among the co-owners based on their ownership share. This means you benefit from the property every time it appreciates or earns rent.
• Increased budget: As co-owners of a property, you can pool your incomes together, enabling you to invest in a larger or more expensive property that might have been beyond your individual financial reach.
• Freedom to more financing options: When multiple individuals co-own a property, they can explore various financing options together. This may include access to joint Home Loans, refinancing, or utilising the equity in the property for financial needs.

A co-borrower (or co-applicant) is a person who will join the primary borrower in applying for a loan. The primary applicant and co-applicant are equally legally responsible for repaying the loan amount and fulfilling the loan obligations. That means any default or delay in payments can impact the credit scores of both borrowers.
Becoming a co-borrower would mean you would have to repay the loan in unfortunate cases like the early passing of the main applicant or willful default of the loan.
When applying for a loan, banks consider immediate relatives, such as parents, siblings, unmarried children, and spouses. Banks discourage including friends or distant relatives as co-applicants for a Home Loan.
It is important to note that most banks and financial institutions require all co-owners to be co-applicants in a loan. But, a co-borrower may not be a co-owner of the property.

Benefits of having a co-borrower

• Better eligibility: When you have a financially stable co-applicant with a good credit history for your loan, financial institutions may consider you more eligible for the loan.
  The income of both borrowers is considered while processing the application.
  
• Higher chances of loan approval: Having a co-borrower with a strong credit profile and stable income can increase the chances of loan approval as lenders may consider the co-borrower's financial stability. This is especially helpful if you have a lower credit score or income.
  
• Higher loan amount: Banks may sanction loans ranging from just a few lakhs to a substantial percentage of the total cost of an upscale property in a prime location if you have a co-borrower.
  
• Increased repayment flexibility: Your repayment schedule may be more flexible with a co-borrower. This enables both borrowers to utilise their income to repay the loan.
• Tax benefits: Both borrowers can claim a tax benefit from the repayment of the Home Loan as long as they're co-owners of the property. Under given conditions and limits, both parties can claim tax benefits to an extent.
• Less individual strain: Having a co-applicant helps legally distribute the burden of loan repayment, making it more manageable for both borrowers. The combined income can be utilised to meet the monthly EMI obligations, reducing individual financial strain.

A co-owner of a property is someone who has shared rights over the possession and use of the property. A co-borrower in a Home Loan is someone with whom the borrower shares the repayment responsibility of the loan. Having or being a co-borrower for a loan has several benefits, but some can only be availed if the co-borrower is also a co-owner of the property. Read the loan conditions properly and consult a legal expert to ensure you're thorough on your part.
HDFC Ltd.* offers a range of Home Loans to purchase, build, renovate, repair or redecorate your living space. Attractive interest rates and flexible tenure and repayment options make the loan perfect for your needs. HDFC Ltd. Home Loans have an easy and hassle-free application process to ensure convenience.

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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. XXX Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification per the bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.