What are the differences between a co-signer and a co-applicant?

Purchasing a home is an important life milestone for most of us. Having a place of your own is definitely something to be proud of, given that for many, this is an unattainable dream. Now, most people rely on home loans for getting the required funds, and if you are also planning on taking the same route, you need to understand the detailed process of a home loan application. Amidst a range of considerations, understanding the roles of a co-signer and a co-applicant becomes very important, as these individuals can significantly influence the process of your loan approval. Let’s understand what co-signers and co-applicants are in home loans, and shed light on their roles, benefits, and the key distinctions that can impact your property ownership.

Who is a co-signer in a home loan?
 

A co-signer is an individual who willingly assumes the responsibility of repaying the loan if the primary borrower fails to meet their financial obligations. This individual, often a family member or a trusted friend, essentially acts as a guarantor, providing an additional layer of assurance for the lender.

The scenario where a co-signer becomes instrumental is when the primary applicant has a lower credit score than the acceptable limit. The co-signer, with a more robust financial standing and a commendable credit score, serves to bolster the overall creditworthiness of the loan application. This boost in creditworthiness can tilt the scales in favour of loan approval.

For a quick approval and seamless onboarding process, IDFC FIRST Bank offers a completely digitised application process with minimal documentation required for loans of up to ₹5 crores. In addition, you get attractive an interest rate on the home loan which helps increase the loan affordability, as well as flexible tenures ranging from 12 months to 360 months for convenient loan repayments.   

Benefits of having a co-signer
 

The advantages of having a co-signer are multifaceted. Firstly, the most apparent benefit lies in reinforcing the borrower's creditworthiness. A co-signer’s good credit score can compensate for any shortcomings in the primary applicant's credit history, thus alleviating the concerns of lenders regarding the risk associated with the loan and repayments.

Furthermore, the presence of a co-signer can translate into more favourable loan terms. Lenders get reassured by the additional layer of financial security and may be more inclined to offer competitive interest rates. This can potentially result in in substantial long-term savings for the borrower.

However, it is crucial to note that while a co-signer plays a pivotal role in securing loan approval, they do not have any ownership rights or benefits associated with the property. Their involvement is primarily confined to the financial aspect of the loan, thus only providing support to ensure its timely repayment.

Who is a co-applicant in a home loan?
 

Unlike a co-signer, a co-applicant is not a financial guardian from a distance but a partner in the process of getting a home loan. A co-applicant is present during the entire loan application process alongside the primary borrower.  Typically, a spouse, parent, son, or single daughter can be a co-applicant for a home loan.

The presence of a co-applicant brings a collaborative dimension to the application process. Both individuals share the responsibilities and benefits associated with homeownership and present a united front in the pursuit of a shared goal.

Benefits of having a co-applicant
 

The collaborative nature of having a co-applicant extends the advantages beyond mere financial considerations. One of the primary benefits is the combined income and financial resources of both applicants. This joint financial strength can significantly enhance the overall eligibility for a higher loan amount and provide the opportunity to explore more substantial and desirable properties.

Additionally, a co-applicant shares not only the financial obligations but also the legal responsibilities of the loan. This shared commitment fosters a sense of joint ownership and instils a cooperative approach to managing the financial aspects of homeownership.

Co-signer vs co-applicant – Key differences
 

Both a co-signer and co-applicant help in streamlining the home loan approval process but there are some differences in the way that they hold liability towards the loan. The following are the key differences:

1. Financial responsibility
   
   A co-signer assumes financial responsibility only if the primary borrower defaults on the loan repayments. On the other hand, a co-applicant shares equal financial responsibility of the home loan.
   
   
2. Creditworthiness
   
   While co-signer strengthens the primary borrower's creditworthiness, a co-applicant equally participates in the application process. The credit history of the primary borrower as well as the co-applicant is considered collectively by the bank.
   
   
3. Ownership and benefits
   
   The co-signer lacks ownership rights or benefits associated with the property. However, a co-applicant equally enjoys shared ownership rights and benefits.
   
   
4. Income consideration
   
   For a co-signer, his income is not primary factor in loan approval. However, for a co-applicant, the combined income influences the loan eligibility and the approved amount.

Conclusion
 

When you apply for a home loan with a partner, the roles of a co-signer and a co-applicant play distinctive yet complementary parts. While a co-signer offers a safety net and strengthen your creditworthiness which then increases the chances of getting a loan approval, a co-applicant contributes to the overall financial strength and shared responsibilities of the primary applicant.

As you choose to apply for a home loan, consider your financial standings and if required, opt for a co-signer or a co-applicant. Whether you choose a co-signer to enhance your creditworthiness or a co-applicant to share all the responsibilities, a well analysed decision can pave the way for a more seamless and successful home loan application.