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    Money & Relationships: What may go wrong when you buy property, take home loan jointly with sibling

    Synopsis

    While there are shared benefits in taking a joint home loan, the siblings should also be careful of the liabilities and other drawbacks. Go through all the likely possibilities before signing on your sibling in this personal finance arrangement.

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    In case of defaults on loan EMI by one of the siblings, the credit score of both the borrowers will be impacted.
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    If you want to buy a house at a young age, but do not have enough money for the down payment or home loan EMI, it’s logical to think of the next feasible option: getting your parent or sibling to buy it jointly with you. However, before you take the big decision of roping in your sibling, consider the pros and cons of buying property and taking a home loan. While there are several advantages of financing and owning a property jointly, the arrangement can also lead to disputes and complications later on in life. Go through all the likely possibilities before signing on your sibling.

    1. You get a bigger loan for a bigger house
    If two people apply for a joint home loan, then both the applicants’ salaries are considered for calculating the loan amount to be sanctioned. Co-borrowers for a home loan are favoured by banks because they translate into low risk of repayment. Besides, it allows the applicants to buy a bigger, more expensive house. So, it can be a good strategy to pool resources with your sibling to pick a high-value property.

    2. Both can get tax benefit
    The joint applicants also enjoy tax advantage provided they are also joint owners of the property. They not only get tax benefit of Rs 1.5 lakh each under Section 80C for the principal amount repaid, but also Rs 2 lakh each for interest paid for self-occupied property under Section 24. The loan interest is paid in the same ratio as the ownership share among the siblings. Another condition to claim this benefit is that the construction of property should be complete.

    3. Property transfer is easier
    In case of the sudden death of one of the co-owners of the property, it is easy to transfer it to the other owner without any legal hassles. In the normal course, one would require proof of being a legal heir to inherit the property, besides collecting several documents and dealing with the possibility of several other claimants to the property. In case of joint ownership, the surviving sibling can have the property transferred by simply getting a fresh registration done in his name in the presence of a lawyer.

    4. Dispute can increase home loan liability
    There are , however, certain disadvantages to this arrangement. If, during the course of loan repayment, there is a falling out among siblings and one of them refuses to repay the loan, the liability of repaying the entire loan, including principal and interest, will lie with the other sibling as he is the co-borrower for the loan. So, in case of any delay or default, legal action can be taken against the co-borrower. This is why it is important to buy a term insurance plan that covers the loan amount.

    5. Discord can make selling property difficult
    Any conflict or dispute between siblings can also make selling the property difficult. So, if one of the siblings has bought the property purely as an investment, aligning it with a specific goal, he or she may find it difficult to dispose it of in case of a disagreement with the brother or sister later. This can jeopardise the achievement of his goal.

    6. Impact on credit score
    In case of defaults on loan EMI by one of the siblings, the credit score of both the borrowers will be impacted. This means that if one of them wants to take another loan later on in life, the poor score may affect his borrowing capacity.

    Disclaimer: The advice in this column is not from a licensed healthcare professional and should not be construed as psychological counselling, therapy or medical advice. ET Wealth and the writer will not be responsible for the outcome of the suggestions made in the column.

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    All of us have been in a financial dilemma when it comes to relationships. How do you say no to a friend who wants you to invest in his new business venture? Should you take a loan from your married brother? Are you concerned about your wife’s impulse buying? If you have any such concerns that are hard to resolve, write in to us at etwealth@timesgroup.com with ‘Wealth Whines’ as the subject.

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