Introduction
Purchasing a home of your own, is often a big decision. Financial prudence requires that a home be purchased in joint names with your family members or with a person you can trust. This is known as co-ownership of a property, and the individuals owning the property become joint owners. The biggest advantage of co-ownership is that in the case of an unfortunate demise of one co-owner, the property is transferred to the other co-owner without much hassle.
Co-owning a property means that the property is registered in the name of more than one person. For example, Ravi and Reena intend to purchase their home as co-owners. They have used the home loan EMI calculator to estimate the monthly EMI.
Let us understand the legal and financial aspects, which Ravi and Reena should keep in mind as co-owners of a home.
Legal Aspects
- All co-owners have the right to possess and use the property, as well as dispose of the property.
- When the property has co-owners, it can be transferred or sold to any third party, only with the permission of all the property owners; unless the registered agreement between them provides the special right to any of the co-owners.
- If the co-owners of the property do not specify their share of the ownership in the agreement, it is termed as ‘Tenancy in Common’. In such a case, the co-owners have equal rights and can transfer their share of the property. If any of the co-owners die, the property doesn’t automatically transfer to the other co-owner. Rather it passes on to the legal heir of the deceased person.
- If the agreement specifies that the co-owners have an equal share and have a single unified interest in the property, they are called joint owners. In such a case, the share of the property is transferred to the remaining co-owners, should any of the co-owners die.
- If the co-owners are a married couple, then the property owned is ‘Tenancy by entirety’. In such a case, the spouses cannot transfer their right to any other person. This tenancy will be dissolved when the spouses are divorced or separated by the death of either spouse.
Financial Aspects
- Just as co-owners enjoy the property jointly, the financial responsibilities must also be shared by them. Financial responsibilities include property tax, society maintenance, home loan EMIs etc. In case any co-owner fails to meet its commitment, the responsibility falls on the other co-owners. In other words, the responsibility of honoring financial payments with respect to the co-owned property, is joint and several.
- Where the property is owned as ‘Tenancy in Common’, and the co-owners are friends or unmarried couples, their home loan eligibility for a joint loan may not be cleared. They may, however, apply for individual home loans.
- Stamp duty and registration charges are levied at the time of purchase of a property. If a woman is the first co-owner in the house property, then the home loan interest rates and the stamp duty rate could be more beneficial.
- Co-owners have better home loan eligibility with the increased loan amount. For the lender, it is preferable to have two people responsible for the payment of interest and repayment of principal, as calculated by the home loan EMI calculator.
- Interest paid and principal repaid by the co-owners shall be allowed as a deduction from the income earned by them. Registration charges and stamp duty paid, can also be claimed as a rebate only in the year of payment. These benefits are available to all co-owners rather than to a single owner if the property is owned in a single name.
Conclusion
Co-ownership of a property is beneficial for the co-owners as well as the lenders. Co-owners are preferred by the home loan lenders, and they get increased loan amounts at a lower interest rate. Besides, all co-owners also get the tax benefit for the interest paid, and the principal is repaid while filing their individual tax returns.
Though co-ownership is beneficial, a good co-owner ensures that you can hold, possess, and dispose of the property without any hassles.