LAP is a commonly used short form to refer to the financial arrangement known as loan against property. Two main factors act as determinants for LAPs, and they are the financial status of the applicant and the current market value of the property that he/she is using as collateral.
Sometimes the value of your property can make you eligible for a high amount of loan, but your income might restrict you to a lower amount. For example: If a person owns a property that makes him eligible for a loan of Rs.70 lakh, but the annual income of the applicant restricts him to undertake a loan amount of Rs.50 lakh. In such a scenario, the applicant can fill the loan application form along with a co-applicant to get the required amount sanctioned.
Why do you need a co-applicant?
As seen in the above example, a co-applicant is a person who signs the application for a loan against property with the main applicant. It is not legally mandatory to have a co-applicant always, but it is a safer option and the chances of getting a loan approved increase many fold. Moreover, since the income of 2 people gets considered in the situation where there is a co-applicant present, the borrower tends to get a higher loan amount than he would have got if he/she would have applied single-handedly.
Advantages of having a co-applicant
There are a variety of advantages that an applicant for a loan against property gets to experience if the application made consists of a co-applicant. Here is the entire list.
- Higher loan amount
- Tax relief
- Benefit from tax on the principal amount
- Certain benefits from taxes on the amount of interest
Acceptable co-applicant combinations
Since applying for a LAP with a co-applicant involves both parties sharing equal sets of responsibilities to repay the approved amount. It is often recommended that the co-applicant should be a close family member related by blood or spouse. Even though co-applicants are not like co-owners and do not own any part of the money, they are still responsible for it, which is a big task in itself. Here are some of the acceptable and common co-applicant combinations:
Husband and Wife
This type of combination is the most common and preferred one. The income of both husband and wife is considered during the document verification and loan approval process, which increases the chances of approval and sanctioned amount up to many folds. Moreover, both of them can jointly own the property and even separate the repayment amount to avail tax deduction benefits.
Father and Son
This combination is applicable only in a situation where the son is the only child in the family. Either one of them can be the principal owner in this case. If there is more than one son in the family and they choose to apply for a LAP with the father as a co-applicant. The father cannot be made the principal owner as there may be issues related to inheritance between the brothers once the father passes away. Moreover, the lender does not consider the father’s income and may not necessarily be considered the co-owner either.
Father/Mother and Unmarried Daughter
In case an unmarried daughter has property in her name, she can have her father and mother as the co-applicant. However, the income of the parents is not taken into consideration in this case.
This combination is only applicable if the brothers are living on the same property and even intend to live together in the future in their new property. Sometimes the brothers need to be co-owners and not merely co-applicants in this case.
Unacceptable co-applicant combinations
As we saw above, there are various terms and conditions that need to be considered while choosing a co-applicant in a LAP. Here is a list of some of the unacceptable co-applicant combinations that will save you from unapproved loan applications:
- Couples who are living together but not married
- Brother and sister
- Father and married daughter
- Mother and married daughter
- Two sisters
People usually feel more comfortable spending a smaller chunk of their savings and taking a loan. It is always a relief to have someone else who can share the responsibility, making the entire loan period a lot more stress-free and advantageous as well. In India, a loan against property is a common choice for most individuals. They find it easier and convenient. We hope that the process of choosing a co-applicant discussed above was helpful enough, making the loan application process easier for you.