Why this matters: When you apply for a home loan, the bank checks how much EMI you can safely pay every month. This depends on your income, existing EMIs, interest rate, tenure, and property value (LTV). Understanding the math helps you set the right budget, improve eligibility, and negotiate better.
Quick link: Open Home Loan Eligibility Calculator
What do lenders look at?
- FOIRFixed Obligations to Income Ratio — % of your net monthly income (NMI) that can go towards all EMIs (existing + new). Typical bank bands ~35–45% depending on profile.
- EMI Math Interest rate (p.a.), monthly rate r = annual_rate/12, tenure n (months) → determines loan amount from an affordable EMI.
- LTVLoan-to-Value — regulatory caps (e.g., up to 80–90% depending on loan slab). The sanction is the lower of income-based eligibility and LTV cap.
- Credit profile Credit score, stability of income, age, co-applicant income, variable pay policy, etc.
Core formulas
1) Maximum EMI you can afford (FOIR method)
Max allowable EMI = (FOIR × Net Monthly Income) − Existing EMIs
2) Convert an EMI into Loan Amount
Loan Amount (P) = EMI × [ (1 + r)^n − 1 ] ÷ [ r × (1 + r)^n ]
Where:
r = monthly interest rate = annual_rate / 12
n = tenure in months
3) EMI from a Loan Amount (for reverse checks)
EMI = P × r × (1 + r)^n ÷ [ (1 + r)^n − 1 ]
4) LTV cap
Max loan by LTV = LTV% × Property Value
Worked Example 1 — Income-based eligibility (digit-by-digit)
Assumptions: NMI = ₹80,000; FOIR = 40% (0.40); existing EMIs = ₹7,000; interest = 9% p.a.; tenure = 20 years (240 months).
Step 1: Max allowable EMI from FOIR
Max total EMI = 0.40 × 80,000 = 32,000
Available for new loan = 32,000 − 7,000 = 25,000
Step 2: Convert EMI to Loan Amount
r = 9% / 12 = 0.09 / 12 = 0.0075
n = 20 × 12 = 240
(1 + r)^n = (1.0075)^240 ≈ 6.009151524472612
Factor = [ (1 + r)^n − 1 ] ÷ [ r × (1 + r)^n ]
= (6.009151524472612 − 1) ÷ (0.0075 × 6.009151524472612)
= 5.009151524472612 ÷ 0.04506863643354459
≈ 111.14495402714912
Loan Amount P = EMI × Factor
= 25,000 × 111.14495402714912
≈ ₹2,778,623.85
Result: Income-based eligibility ≈ ₹27,78,624.
Worked Example 2 — Reverse: income needed for a target loan
Assumptions: Desired loan P = ₹40,00,000; interest = 9% p.a.; tenure = 20 years; existing EMIs = ₹7,000; FOIR = 40%.
Step 1: Compute EMI for ₹40,00,000
r = 0.09 / 12 = 0.0075
n = 240
(1 + r)^n = 6.009151524472612 (from earlier)
EMI = P × r × (1 + r)^n ÷ [ (1 + r)^n − 1 ]
= 40,00,000 × 0.0075 × 6.009151524472612 ÷ 5.009151524472612
= 180,274.545734 ≈ divided by 5.009151524472612
≈ ₹35,989.04
Step 2: Required income from FOIR
FOIR × NMI = EMI (new) + existing EMIs
0.40 × NMI = 35,989.04 + 7,000 = 42,989.04
NMI = 42,989.04 ÷ 0.40 = ₹107,472.60
Result: You’d need about ₹1,07,473 net monthly income.
Worked Example 3 — Add LTV check
Assumptions: NMI = ₹1,20,000; FOIR = 45%; existing EMIs = ₹0; rate = 8.5% p.a.; tenure = 25 years (300 months); property value = ₹90,00,000; LTV = 75%.
Step 1: Max allowable EMI
Max EMI = 0.45 × 1,20,000 = 54,000
Step 2: Convert EMI to Loan Amount
r = 0.085 / 12 = 0.007083333333333333
n = 300
Loan Amount P ≈ ₹67,06,182.78 (computed via formula)
Step 3: LTV cap
Max by LTV = 0.75 × 90,00,000 = ₹67,50,000
Final eligibility = min(Income-based, LTV cap)
= min(₹67.06 lakh, ₹67.50 lakh)
= ₹67.06 lakh (approx.)
Comparison table — How FOIR changes eligibility (same profile)
Assumptions for the table: NMI ₹80,000; existing EMIs ₹7,000; interest 9% p.a.; tenure 20 years.
| FOIR | Available EMI (₹) | Eligible Loan (₹) |
|---|---|---|
| 35% | 21,000 | ₹23,34,044 |
| 40% | 25,000 | ₹27,78,624 |
| 45% | 29,000 | ₹32,23,204 |
How to improve eligibility
- Add a co-applicant (spouse/parent with income) to increase NMI used in FOIR.
- Reduce existing EMIs (close short loans/credit cards) to free up FOIR room.
- Choose a longer tenure (reduces EMI → higher P), but watch total interest.
- Improve credit score for better rates (lower r → higher P for same EMI).
- Higher down payment to meet LTV caps and lower EMI needs.
Try our Home Loan Eligibility Calculator
Enter your income, existing EMIs, interest rate, tenure and property value to get instant eligibility with FOIR & LTV checks:
Open Home Loan Eligibility Calculator
FAQ
Q: What FOIR do banks use?
A: Varies by lender/profile (often 35–45% of NMI). Salaried prime customers may get higher FOIR than self-employed with variable income.
Q: Does variable pay/bonus count?
A: Usually partially and averaged; lenders prefer stable income components.
Q: How does tenure affect eligibility?
A: Longer tenure lowers EMI for the same loan → higher eligibility, but increases total interest cost.
Disclaimer: Numbers above use the standard amortisation formula and rounded results for readability. Actual lending policies (FOIR/LTV/credit score) vary by bank/NBFC and may change over time. Verify with your lender.