Overview
Loan eligibility isn't one fixed number. It's the output of a calculation that combines your income, existing debt obligations, the interest rate offered, the tenure you choose, and increasingly your credit score. Two applicants with identical salaries can walk away with very different eligible loan amounts depending on these factors. This guide breaks down how banks compute eligibility for home loans and personal loans, so you can estimate your own figure before walking into a bank or filling out an online application.
Run the numbers through the Loan Eligibility Calculator alongside this guide to get a precise, personalised figure.
What You Need
- Your net monthly income (take-home salary after PF, professional tax, and income tax deductions, not gross salary)
- A list of all existing EMI obligations (car loans, personal loans, credit card minimum dues, other running loans)
- Your approximate credit score (CIBIL score, if you've checked it recently)
- The interest rate and tenure being offered by the lender you're evaluating
Step 1: Understand FOIR (Fixed Obligation to Income Ratio)
FOIR is the core metric most banks use to figure out how much EMI you can afford. It's calculated as:
FOIR (%) = (Total EMIs including new loan ÷ Net Monthly Income) × 100
Banks typically cap FOIR at 40 to 50% of net monthly income for most applicants. Your total EMI burden, existing loans plus the new one, can't cross that percentage of take-home pay. Applicants with a strong credit score and a stable income history sometimes qualify for a more generous FOIR cap of up to 55 to 60%, since the bank sees them as lower-risk.
Step 2: Apply the Income Multiplier Method
Some banks lean on a simpler shortcut alongside or instead of FOIR: the income multiplier method. Under this approach, home loan eligibility works out to:
Eligible Loan ≈ 60 to 72 × Net Monthly Salary
That roughly translates to 5 to 6 times your annual income for a standard 20-year tenure. It's faster during an initial inquiry, but less precise than FOIR since it skips your specific existing EMIs and the exact rate you're quoted. Treat it as a rough estimate rather than a final number.
Step 3: Calculate Maximum EMI You Qualify For
Once you know your FOIR cap, work out the maximum EMI you can take on for the new loan:
Max New EMI = (FOIR % × Net Monthly Income) − Existing EMIs
Worked example: An applicant earns a net monthly income of Rs 80,000, the bank applies a 50% FOIR cap, and the applicant already pays Rs 10,000 per month toward an existing car loan.
Max total EMI allowed = 50% × Rs 80,000 = Rs 40,000
Max new EMI = Rs 40,000 − Rs 10,000 (existing car loan EMI) = Rs 30,000
This applicant can afford a maximum EMI of Rs 30,000 per month for the new loan, once the existing obligation is factored in.
Step 4: Convert Max EMI to Loan Amount
With the maximum affordable EMI in hand, convert it into an eligible loan amount using the standard EMI formula in reverse, solving for the principal given a known EMI, interest rate, and tenure:
P = EMI × [(1 + r)^n − 1] / [r × (1 + r)^n]
P = Loan principal (eligible loan amount)
EMI = Maximum monthly EMI you can afford
r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
n = Number of monthly instalments (tenure in years × 12)
Continuing the example: with a maximum EMI of Rs 30,000, at a 9% annual interest rate over a 20-year tenure (240 months, monthly rate r = 0.75% = 0.0075):
P = 30,000 × [(1.0075)^240 − 1] / [0.0075 × (1.0075)^240]
P ≈ Rs 36 lakh
This applicant qualifies for an eligible home loan of approximately Rs 36 lakh at these terms. Stretching the tenure to 25 or 30 years raises this eligible amount further, since the same EMI then services a larger principal over more instalments. It also adds to the total interest paid over the loan's life, so weigh the eligibility gain against the interest cost before choosing a longer tenure purely to qualify for a bigger loan.
Step 5: Account for Other Factors
The core FOIR and EMI-to-loan calculation isn't the whole picture. A few other factors move your final eligible amount too.
Credit score matters first: a CIBIL score above 750 typically secures the bank's best interest rate and can unlock a higher FOIR cap, while a score below 700 often means a higher offered rate (shrinking the loan amount the same EMI supports) or, at some lenders, outright rejection.
Age and remaining working years matter next. Banks limit tenure so the loan gets fully repaid by a maximum age, typically 60 for salaried applicants and 65 to 70 for self-employed applicants. A 50-year-old applicant might be restricted to a 10 to 15 year tenure rather than the full 20 to 30 years available to someone younger, which directly cuts eligibility.
Co-applicant income can help too. Adding someone with independent income, most commonly a working spouse, raises the combined net monthly income used in the FOIR calculation and lifts the maximum allowable EMI, provided the co-applicant's own EMIs don't cancel out the benefit.
Common Mistakes to Avoid
Using gross salary instead of net salary trips up a lot of applicants. Banks calculate FOIR on take-home pay after deductions, not gross CTC, so estimating eligibility off gross salary inflates the expected loan amount and sets you up for a lower offer than you hoped for.
Forgetting existing EMIs and credit card dues is another common gap. Applicants often account for a car loan or personal loan but forget smaller recurring obligations like credit card minimum dues or education loan instalments. Each one lowers the maximum new EMI you can qualify for, so pull your last 3 months of bank statements and list every recurring payment.
Ignoring the credit score impact costs more than a rejection risk. A lower score can quietly shrink your eligible loan amount by pushing you into a higher interest rate bracket, where the same maximum EMI supports a smaller principal. Check your score before applying and clear up any errors or overdue accounts that might be dragging it down.
Formula & Methodology
The full eligibility calculation chains three formulas together:
Step A, FOIR cap: Max Total EMI = FOIR % × Net Monthly Income
Step B, Net new EMI: Max New EMI = Max Total EMI − Existing EMIs
Step C, Loan amount (PV): P = EMI × [(1 + r)^n − 1] / [r × (1 + r)^n]
Using the worked example throughout this guide, Rs 80,000 net income, 50% FOIR, Rs 10,000 existing EMI, 9% interest, 20-year tenure, the eligible loan amount lands at approximately Rs 36 lakh. Change any single input and the result shifts: a higher FOIR cap of 55% instead of 50% raises the max new EMI to Rs 34,000, pushing eligibility to roughly Rs 41 lakh at the same rate and tenure. Extending tenure to 25 years at the original Rs 30,000 EMI raises eligibility to about Rs 39 lakh, but adds several lakh in total interest paid over the loan's life.
For a precise number based on your own income, existing obligations, and the specific rate and tenure your bank is offering, use the Loan Eligibility Calculator. Pair it with the Home Loan EMI Calculator to compare EMI outcomes across different loan amounts and tenures, and the Debt-to-Income Calculator to check your overall debt load before applying for a new loan.