Managing Dual Incomes for Home Loan Affordability: Tips and Benefits for Couples

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Last updated on 26th February 2024

Managing dual incomes effectively is essential for couples aiming for home loan affordability, particularly when considering a joint housing loan. A joint loan leads to a higher loan amount, better interest rates, and improved affordability. Here are some key strategies and tips for applying for a joint home loan with your wife or spouse that can increase your loan eligibility and maximize the benefits. 

Table of Contents

Tips for Dual Incomes for Home Loan Affordability

Home Loan Affordability: Couples should first assess their home loan affordability. This involves understanding how much they can borrow based on their combined incomes and expenses. A home loan affordability calculator can be a useful tool in this process. These calculators take into account both incomes, debts, and other financial obligations to give an estimate of the affordable loan amount​.

Understanding Debt to Income Ratio: This ratio is crucial for mortgage lenders to determine your ability to afford a mortgage along with other monthly obligations. It involves calculating your monthly debt payments and dividing them by your gross monthly income, which should ideally be 43% or lower to qualify for most mortgages​.

Utilizing Financial Tools: Using mobile apps to track expenses, savings, and investments can help manage dual incomes efficiently. These tools provide visibility into each partner's contribution to the household's finances and help in planning​.

Exploring Home Loan Schemes: In India, there are many affordable home loan schemes for low-income groups aimed at making housing more accessible. These joint loan schemes often offer favorable terms like lower interest rates or down payment requirements, making it easier for dual-income families to afford a home loan. One such initiative is the Pradhan Mantri Awas Yojana (PMAY), which aims to make home loans more affordable for different segments of the population. This scheme is particularly beneficial for couples with moderate to low incomes​.

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Financial Planning and Budgeting: Dual-income couples should set clear financial goals and create a budget that accounts for loan repayments, living expenses, and savings. This involves regular financial discussions and a joint approach to managing money​.

Emergency Fund and Debt Management: Building an emergency fund is crucial for covering unexpected expenses. Additionally, investing for retirement, and managing existing debt effectively is important to maintain a healthy credit score. 

Seeking Professional Advice: Finally, consulting a financial advisor can be beneficial, especially for complex financial situations. They can guide the best home loan products, tax planning, and long-term financial strategies suitable for dual-income households​.

Considering Living on One Income: Dual-income couples may benefit from living on one income and saving the other. This approach helps in avoiding higher fixed costs and maintaining financial flexibility in case of income loss. Living on one income will also help the couple in family planning when the expenses increase and there is a possibility of one partner taking time off work. 

Benefits for Dual Incomes for Home Loan Affordability

Better Affordability: By combining the incomes of both the husband and wife, the eligibility for a joint home loan increases, allowing for a higher loan amount at reduced interest rates. This joint approach not only eases the repayment of the principal and interest but also evenly distributes the responsibility of loan repayment between the partners. The loan approval process tends to be smoother as well, given that the collateral is jointly offered by both spouses. Additionally, when the wife is a co-applicant, some banks/NBFCs also offer discounted interest rates, typically around 0.05%. This seemingly small discount percentage can significantly reduce the repayment amount and the EMIs become more manageable. Couples should inquire with their lender about these specific benefits when considering a joint home loan.

Annual Taxation: Availing of a joint home loan can bring significant tax advantages for couples. Under Section 80C of the Income Tax Act, each partner in a joint home loan can claim a deduction of up to INR 1.50 lakhs on the principal repayment. Additionally, Section 24 offers a deduction of up to INR 2 lakhs on interest repayment. This means, collectively, a couple can benefit from a tax deduction of up to INR 3 lakhs under Section 80C and INR 4 lakhs under Section 24, providing a substantial financial advantage and aiding in the home loan repayment process. However, it's important to note that the tax benefits under Section 80C are not applicable for properties that are still under construction. This strategic tax planning can result in considerable savings for couples co-borrowing a home loan.

Saving on Stamp Duty: Opting for a joint home loan as a married couple can bring about financial benefits, notably in the form of reduced stamp duty charges. To encourage women's property ownership, the government in several states offers concessions on stamp duty rates for female property buyers. This initiative, aimed at fostering women's empowerment, leads to a more favorable stamp duty structure for women. Notably, states like Delhi, Uttar Pradesh, and Haryana have adopted these reduced rates. However, it's important to note that some states, such as Maharashtra, maintain a uniform stamp duty rate for both men and women. This differential approach in stamp duty charges underscores the varying policies across regions, tailored to encourage property ownership among women.

Suggested read: Stamp Duty in Different Indian States

In conclusion, managing dual incomes for home loan affordability requires careful planning, understanding of various loan schemes, and effective communication between partners. Whether it's through affordable home loan schemes, joint home loans, or financial planning, couples can navigate their path to homeownership with a collaborative and informed approach. A thoughtful approach can also save them a lot on interest rates, various loan charges, and annual taxes.

FAQs About Dual Incomes for Home Loan Affordability

To manage dual income effectively, couples should create a joint budget, set financial goals, maintain both joint and individual bank accounts, manage debts together, build an emergency fund, have regular financial discussions, and consider consulting with a financial advisor.

Yes, both husband and wife can claim tax exemptions for a home loan if they are co-borrowers and co-owners of the property. They can individually claim deductions on the principal and interest payments under applicable tax laws.

Home loan affordability is typically based on the Debt-to-Income (DTI) ratio, which compares a person's total monthly debt payments to their gross monthly income. Lenders often prefer a DTI ratio of 43% or lower, though this can vary.

The key variables to calculate affordability of housing loans include gross monthly income, existing monthly debt obligations, credit score, down payment amount, interest rate of the loan, and the loan term.

To improve home loan affordability, increase your down payment, improve your credit score, reduce existing debts, consider a longer loan term for lower monthly payments, explore different loan types, and possibly apply for a joint home loan with a spouse or family member.

Published on 12th December 2023