Loan Eligibility Calculator

How Banks Evaluate Your Loan Eligibility

When you apply for a high-value loan (like a home loan), banks do not just look at your gross salary; they perform a meticulous credit underwriting audit. Underwriting helps lenders determine your repayment capacity, minimizing their credit default risk.

The two main pillars of bank loan underwriting are:

1. FOIR (Fixed Obligation to Income Ratio): Evaluates your monthly budget capacity.
2. LTV (Loan-to-Value) Ratio: Evaluates the collateral asset value.

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What is FOIR (Fixed Obligation to Income Ratio)?

The Fixed Obligation to Income Ratio (FOIR) is the percentage of your gross monthly salary that you currently pay (or can afford to pay) towards debt repayments like EMIs and credit card dues.

• Bank Limits: Major banks generally cap your total combined FOIR at 50% of your monthly salary. For high-income earners, this cap may be relaxed up to 60-70%, whereas for low-income brackets, it can be tightened to 30-40%.
• Existing Obligations: If you have existing personal loans or car loans, the EMIs for those are deducted from your allowed FOIR budget, directly reducing the eligible loan amount for your new loan.

Mathematical FOIR Eligibility Formula:

Max Monthly EMI Allowed = (Gross Monthly Salary * FOIR %) - Existing EMIs

For example:

• Gross Salary = ₹1,50,000 per month
• FOIR Limit = 50%
• Existing EMIs = ₹20,000
• Max Monthly EMI Allowed = (1,50,000 * 0.50) - 20,000 = ₹55,000

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What is LTV (Loan-to-Value)?

The Loan-to-Value (LTV) ratio represents the maximum percentage of the property value that the bank is willing to finance. The remaining percentage must be funded by you upfront as a down payment.

• Standard Cap: For home loans, the Reserve Bank of India (RBI) mandates standard LTV limits:
  • Loans up to ₹30 Lakhs: Up to 90% LTV
  • Loans ₹30 Lakhs to ₹75 Lakhs: Up to 80% LTV
  • Loans above ₹75 Lakhs: Up to 75% LTV
• Down Payment: If you are eligible for a ₹80,000,000 (80 Lakhs) loan under an 80% LTV bank standard, the estimated maximum property value you can purchase is ₹1,00,00,000 (1 Crore), requiring ₹20,00,000 (20 Lakhs) in self-contribution.

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5 Actionable Tips to Boost Your Loan Eligibility

If your calculated loan eligibility is lower than the price of your target home or property, use these credit strategies to boost your eligibility:

• Add a Co-Borrower: Clubbing the income of a working spouse, parent, or sibling instantly increases the pool of monthly income, multiplying your loan eligibility.
• Clear Existing Debts: Pay off credit card dues, active personal loans, or consumer durables loans. Clearing a ₹10,000 monthly car EMI can unlock lakhs in additional home loan borrowing!
• Opt for a Longer Tenure: Extending your tenure (e.g., from 15 to 25 years) lowers the monthly EMI per Lakh borrowed, which increases the maximum principal loan size you can borrow under the same FOIR limit.
• Declare Additional Income Sources: Disclose side incomes, annual bonuses, dividends, or rental receipts. Providing robust, verified proof of extra income increases your gross monthly base.
• Negotiate a Lower Interest Rate: A lower interest rate means more of your monthly payment goes toward principal rather than interest charges, allowing you to qualify for a larger loan amount.

Use this free online Loan Eligibility Calculator to simulate bank credit limits, budget your monthly salary allocation, and plan your down payment target.