Co-applicant vs. Co-signer for a home loan – know the difference

When you apply for a home loan, you have the option to take an individual home loan or a joint home loan. A joint home loan is appropriate when the ownership of the house is divided, your credit score is lower than 750 points, or you want to maximize your income tax benefits under Section 80C and Section 24. However, before you apply for a joint loan, understand the different terminologies involved. Two of the most critical terms used in the context of a joint home loan are co-applicant and co-signer. Each term has a different meaning and implication for your home loan.

Read on to know about the differences between a co-applicant and co-signer for a home loan:

Basis of Difference Co-applicant Co-signer
Meaning A co-applicant is a person who applies for a home loan with the primary borrower. A co-signer is a person with a good credit rating who acts as a guarantor for the borrower by signing the home loan application.
Liability A co-applicant is liable to pay the home loan EMIs along with the primary borrower. A co-signer is not required to pay any home loan EMIs, provided the primary borrower does not default on the loan repayment. In case of default, the co-signer would be liable to pay all pending EMIs as per the home loan interest rates.
Reason for inclusion Adding a co-applicant increases chances of meeting the home loan eligibility for the primary borrower. Co-applicants also provide home loan repayment support. Adding a co-signer is beneficial for the primary borrower if they have a low credit score. A low credit score negatively influences home loan eligibility.
Eligible persons Usually, a co-applicant can only be a spouse. In some cases, banks and financial institutions allow parents and children to seek joint home loans. A co-signer for a home loan can be a person, friend or family, with a good credit history and strong income.
Credit score A co-applicant may or may not have a high credit score. Only a person with a high credit score (above 750) can be a co-signer. A high credit rating improves home loan eligibility for the primary borrower and attracts lower home loan interest rates.
Legal rights A co-applicant has legal rights over the property for which the home loan is taken, provided the co-applicant is also the co-owner of the property. A co-signer has no legal rights over the property or the home loan amount.

Conclusion

Before taking a home loan or participating in any capacity in a home loan agreement, understand your responsibilities, legal implications, and accountabilities beforehand. Irrespective of whether you are a co-applicant or a co-signer, read all home loan documents carefully and use an online home loan EMI calculator to understand your financial responsibilities if need be.