It is not an easy task to buy a home today especially if you live in a metropolitan city. Moreover, it is nearly impossible to buy a house by paying the full price of it unless you have a massive saving, an unending supply of money or own a real estate currently that you can resell to fund your new home purchase. You will then not have to go to any lender for the required funds for buying your new home.
Well, most of the people do not have any of these opportunities. This is the primary reason why most people take out home loan, or joint home loan rather, to buy a new home.
Home loans typically involve a large amount of money borrowed for a long period of time. Therefore, these loans come with a lot of responsibility for the borrower. In order to share or reduce this responsibility to some extent, most people opt for joint ownership of the loan.
However, in the new home lending industry, there are a few common myths that surround such home lending. If you want to avail a joint home loan, be it a commercial bank or any other sources such as https://www.libertylending.com/, it is better that you know these myths and then facts as well as the pros and cons of it to make an informed decision.
Reasons to take out a joint home loan
Just as the name implies, a joint home loan is a loan taken with another person. This could be your spouse or sibling. There are several reasons for people availing joint home loans rather than any standard home loans. However, the most significant reason is bad credit. This is because for all types of loans the lender will always check your credit score and report. This helps them to:
- Find out the loan repayment history of your previous loans and it further helps them to assess your creditworthiness
- It is also a standard practice followed by the lenders to reduce the risk of increasing the number of non-performing assets
Ideally, your credit report should look fine in order to avail of any type of loan. A fine credit report will not include things like:
- Any history of late payments
- Loan defaults
- Debt settlement
- Bankruptcy reports and others.
In the absence of these elements in your credit report, the credit score will be high. It is only then you will be able to avail a loan easily.
In the case of low credit score
With this case, you should not lose your hope because you can take out a joint home loan as an alternative option.
- In this type of home loan, you will need to arrange for a co-borrower but make sure that the credit score of the co-borrower is fairly high. This will balance your low credit score and make it much easier to get your home loan approved.
- Another reason that most people take out a joint home loan is that they are not able to repay the entire amount of the loan on their own. Taking out a joint home loan with a co-borrower will distribute the burden of the loan amongst you two making it much easy for you to repay the loan.
Fair as it may seem to you, there are a few other things that you should consider in order to make the joint home loan work in your favor.
The pros of joint home loan
Now that you know why people or you should take out a joint home loan, you must now look at the advantages as well the downsides of taking out such a loan.
As far as the advantages of this loan are concerned, it can be summarized as:
- It will raise your chances to get a home loan at a much attractive interest rate as compared to any other regular home loan
- If the credit score of the co-borrower is really high, it will also increase your chances to get larger amounts in a joint home loan that you could not have availed on your own which will enable you to afford to buy expensive property.
Most importantly, you along with your co-borrower will be able to claim for tax benefits according to the income tax regulations which is a significant reason to go for a joint home loan.
Looking at the downsides
Yes, a joint home loan can be your best option if you are unable to get any other type of home loan due to your poor credit score, but this does not come without any downsides at all. The most significant disadvantage of a joint home loan is that in case the co-borrower simply refuses or is unable to pay the EMIs on time, then the credit score and report of both will be affected.
In addition to that, a joint home loan can raise several types of legal issues especially when the co-borrower is your spouse and in case you two want to get separated or get divorced. According to the law, even if you and your spouse get divorced the home loan must be repaid.
As per the ownership status of the property, after the loan is repaid, it will be in the name of the person the property is registered to. If it is not the co-borrower, he or she will not be the owner even if he or she has paid his or her share of the EMIs.
The myths to overlook
It is for the downsides that people often discourage others to take out a joint home loan. There are lots of myths that surround joint home loans that you should overlook. You should not believe if others say that:
- The requirement of a co-borrower is just a formality
- Only one co-borrower can avail tax benefits or
- You will surely get such a loan if you can rope in a co-applicant.
These are a few things that you must ignore to get a joint home loan. Also remember the fact that if you fail to prepare, then be prepared to fail.