How Banks Calculate Your Loan Eligibility
Banks use a simple rule called the Fixed Obligation to Income Ratio (FOIR). They allow you to spend a maximum of 40–55% of your net monthly income on all EMIs combined (existing + new loan).
Formula: Maximum New EMI = (Net Income × FOIR %) − Existing EMIs
Once they know your maximum EMI, they work backwards to calculate the maximum loan amount you can get at the current interest rate for your chosen tenure.
💡 Example: If your net income is ₹75,000 and you have no existing EMIs, your maximum new EMI is ₹75,000 × 50% = ₹37,500. At 8.50% for 20 years, this means you can get a home loan of approximately ₹43 lakhs.
How to Increase Your Loan Eligibility
- Close existing loans — pay off personal loans or car loans before applying for a home loan to free up your FOIR capacity.
- Add a co-applicant — a spouse or parent's income can be clubbed, significantly increasing the eligible loan amount.
- Choose a longer tenure — a 25–30 year tenure reduces your monthly EMI, allowing a higher loan amount within the same FOIR limit.
- Improve your CIBIL score — above 750 gets the best rates, above 800 sometimes gets preferential processing fees waived.
- Declare all income sources — rental income, professional income and bonuses can be included if you can show documentation.