All about home loan eligibility calculation
Applicant 1 – Salaried with other liabilities:
Shyam Krishna, 35, earns a salary of Rs.75000 per month. He applied for a loan of 40 lakhs over already having a car loan with an EMI of Rs.15,250, and a personal loan with a EMI Rs.9,850. Is Shyam then eligible for 40 lakhs loan?
Now let us assume that the bank offers home loans at 11% interest rate.
Prakash decided that Shyam is eligible only for a loan of 12 lakhs and rejects the application.
Surprised?
Prakash checked his income-to-debt ratio first. This is also known as the FOIR (Fixed Obligations to Income Ratio). As Shyam is already paying an EMI of Rs.25,100 (car loan + personal loan), with Rs.75,000 as monthly income and a monthly liability of Rs.25,100, his FOIR stands already at 33%.
The bank could offer him another loan, keeping his FOIR at a maximum of 50%. If he takes a loan of 12 lakhs, his maximum FOIR will be 50%. If he takes 40 lakhs, as applied, his FOIR will be 88%, which cannot be agreed upon.
So what way could Shyam get the loan amount he requires?
If Shyam closes the other liabilities (car loan and personal loan), he is eligible for a loan up to 37 lakhs (at FOIR 50%).
How do the banks arrive at this figure?
Most banks calculate home loan eligibility with the formulae: Monthly Income X 50% – minus other liabilities if any / per lakh EMI.