Home Loan Eligibility Formula

Real Estate Formula • Published on September 01, 2026 • Last updated September 01, 2026

Mathematical Equation

$$\begin{aligned} \text{Max EMI} &= (\text{Monthly Salary} \times \text{FOIR}) - \text{Existing EMI} \\ \text{Eligible Loan} &= \text{Max EMI} \times \frac{(1+r)^n - 1}{r(1+r)^n} \end{aligned}$$

Variable Definitions

FOIR

Fixed Obligation to Income Ratio — the tiered % of income (40-55%) banks allow toward all EMIs, based on income bracket

Max EMI

Maximum monthly installment the bank will approve after existing obligations

Monthly interest rate (Annual Rate / 12 / 100)

Loan tenure in months, capped at 30 years or (60 − applicant age)

Detailed Explanation

In-Depth Guide

Key Concept

Banks use the Fixed Obligation to Income Ratio (FOIR) method to decide how much of your monthly income can go toward loan repayments.

The FOIR percentage itself rises with income (40% for lower incomes up to 55% for higher earners), reflecting that higher earners can comfortably commit more of their salary.

Once the maximum affordable EMI is known, the eligible loan amount is reverse-calculated using the standard loan annuity formula.

How to Calculate: Step-by-Step

1. Determine your FOIR tier based on monthly salary (40% under ₹30,000, up to 55% for ₹1,00,000+). 2. Calculate Max EMI = (Salary × FOIR%) − any existing EMI obligations. 3. Convert the annual interest rate to a monthly rate (r = Annual% / 12 / 100). 4. Determine tenure in months, capped at 30 years or (60 − your age), whichever is lower. 5. Apply the loan annuity formula in reverse to convert Max EMI into an eligible principal amount.

Worked Calculation Example

Monthly Salary = ₹80,000, Existing EMI = ₹5,000, Interest Rate = 8.5%, Tenure = 20 years, Age = 30: - FOIR tier for ₹80,000 = 50% - Max EMI = (80,000 × 0.50) − 5,000 = ₹35,000 - r = 8.5 / 12 / 100 = 0.007083 - n = min(20, 60−30) × 12 = 240 months - Eligible Loan ≈ ₹35,000 × [(1.007083^240 − 1) / (0.007083 × 1.007083^240)] ≈ ₹40.2 lakh

Common Use Cases

Estimating how much home loan you qualify for before house-hunting
Understanding how existing EMIs reduce your borrowing power
Planning tenure and down payment based on realistic bank approval limits

Frequently Asked Questions

Banks assume higher earners have more disposable income after essential expenses, so they permit a larger share of income (up to 55%) toward EMIs, while lower incomes are capped at 40% to protect against default risk.

Yes. This formula estimates income-based eligibility only. Your actual sanctioned amount also depends on credit score, employment stability, and the bank's specific lending policy.

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