FOIR stands for Fixed Obligation to Income Ratio. It is the single number that decides how large a loan a bank will actually give you, and it is the reason two people on the same salary get very different sanction letters.
The calculation is deliberately simple. Add up every fixed monthly obligation you already carry, divide by your net monthly income, and express it as a percentage. A lender then checks whether adding the proposed new EMI would push that percentage past its internal ceiling.
Your credit score decides whether a lender will lend to you at all and at what rate. FOIR decides how much. Both have to clear before a loan is sanctioned.
What counts as a fixed obligation
Lenders include existing home, car, personal, education and gold loan EMIs, credit card minimum dues or a notional percentage of the outstanding card balance, and any statutory or contractual commitment such as court-ordered maintenance. Most lenders also add the proposed new EMI itself, which is the whole point of the exercise.
What they usually exclude is ordinary living cost. Groceries, school fees, utilities and rent are typically not counted, though some lenders do treat rent as an obligation for a personal loan applicant who is not buying a house. This is exactly why FOIR is a lender's affordability test rather than yours. A 50% FOIR can look comfortable on paper and still leave a household with nothing left after school fees.
Which income figure banks use
Almost always net take-home pay, not CTC. Employer PF, professional tax and TDS are stripped out first. Some lenders will add back a portion of stable variable pay, rental income or spouse income if the spouse is a co-applicant, and most discount irregular income such as commissions or freelance receipts to a conservative average of the last twelve to twenty-four months.
A worked example
Take a salaried applicant with Rs 80,000 net take-home pay each month, an existing car loan EMI of Rs 12,000 and a personal loan EMI of Rs 6,000.
Current fixed obligations are Rs 18,000, so the existing FOIR is 18,000 divided by 80,000, which is 22.5%.
If the lender works to a 50% ceiling, total permitted obligations are Rs 40,000. Subtracting the Rs 18,000 already committed leaves headroom of Rs 22,000 a month for a new EMI.
At an interest rate of 9% over 20 years, an EMI of roughly Rs 900 services about Rs 1 lakh of principal, so Rs 22,000 supports a home loan of approximately Rs 24.5 lakh. Clearing the Rs 6,000 personal loan first would lift the headroom to Rs 28,000 and the eligible loan to roughly Rs 31 lakh, without the applicant earning a single rupee more.
Run your own version of this with the home loan eligibility calculator and check the EMI at different tenures with the EMI calculator.
Typical FOIR bands
Ceilings are set by each lender rather than by regulation, and they move with income, employment type and product. The pattern below is the one applicants most commonly encounter.
| Monthly net income | Typical FOIR ceiling | Practical reading |
|---|---|---|
| Below Rs 30,000 | 40% to 45% | Little room for a second loan |
| Rs 30,000 to Rs 60,000 | 45% to 50% | Standard salaried band |
| Rs 60,000 to Rs 1.5 lakh | 50% to 55% | Most home loan applicants sit here |
| Above Rs 1.5 lakh | 55% to 65% | Higher surplus after living costs |
| Self-employed | Often stricter | Assessed on ITR-declared income |
Treat these as indicative. Confirm the ceiling with the specific lender, because the difference between 45% and 55% on the same salary can change your sanction by several lakh rupees.
How to improve your FOIR before applying
The fastest lever is closing or prepaying the smallest high-EMI loan, because FOIR responds to the monthly outflow rather than the outstanding balance. Paying off a Rs 40,000 credit card balance can remove a notional obligation worth far more than Rs 40,000 of eligibility.
The second lever is tenure. Stretching a home loan from 15 to 20 years cuts the EMI and therefore the FOIR, at the cost of considerably more total interest, so it buys eligibility rather than savings.
The third is adding an earning co-applicant, which raises the income side of the ratio. A spouse or parent with steady income can lift eligibility substantially, though they take on joint liability for the whole loan.
Finally, avoid taking any new credit in the six months before a large application. A new car loan taken two months before a home loan application reduces your eligible loan by many times the car loan's value.