20 OCTOBER, 2021

Mehek always wanted to buy a house but lacked enough savings to afford one. She decided to take a home loan. However, her application was rejected, as she couldn’t meet the eligibility. Dejected, she was about to let go of her dream when her husband suggested co-borrowing the loan with her. Having a co-borrower improved Mehek’s home loan eligibility, helping her get approval instantly. Now, she is the vocal promotor of joint home loans for all her friends wanting to buy a house.

Your co-borrower can enhance your loan eligibility through many ways. If you are a potential homebuyer, go through the details below.

What Is a Co-borrower?

The person with whom you avail the home loan is called a co-borrower. A co-borrower shares the responsibility of repaying the loan with you. Having a co-borrower reduces your debt burden and can help you get the best home loan interest rates. Your co-borrower can be your spouse, sibling or parent. However, a friend, distant relatives, or a minor cannot be your co-borrower.

How Does a Co-borrower Improve Your Home Loan Eligibility?

  • Enhanced income

Your income is a crucial eligibility criterion for lenders while processing the loan application. Often they consider your income to determine your creditworthiness. If your income is below their requirement or if you have an unstable job profile, this could raise questions on your repayment capacity. Having a co-borrower solves this issue. In a joint loan, the lender combines the income of all the applicants to determine the eligibility. Therefore, having a co-borrower helps increase your income and thus your eligibility. Having a co-borrower can also help lower your debt to income ratio, increasing chances of loan approval. With an increased income, you can avail higher loan amounts and even better interest rates.

  • Combined credit score

If you apply for a home loan with a low credit score, the lender can choose to reject your loan application. They can also reduce your loan amount or offer you a higher interest rate. However, if you have a co-borrower with a good credit score, you are more likely to get approval for a housing loan. Lenders consider the credit score of all the applicants while processing the loan application. With a combined credit score, your credibility and eligibility are enhanced, helping you avail a better deal.

To Sum up

It is next to impossible to avail a home loan if you do not meet the lender’s housing loan eligibility. However, when you apply for a home loan with a co-borrower can be of great help. But you must know the responsibilities and limitations of having a co-borrower while availing a joint loan. Defaulting in EMI payment by your co-borrower can reduce your credit score. Therefore, ensure the credibility of your co-borrower before availing a joint home loan.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.