Home Loan Masterclass · Part 3 · Home loans · 8 min read · July 2026

How banks actually calculate your home loan eligibility

Two colleagues, same company, same ₹80,000 take-home. One gets sanctioned ₹46 lakh, the other ₹25 lakh. Neither of them was told why. From the other side of the desk, here is the exact math — and the four honest levers that change your number.

When a home loan file lands on a credit desk, the first question is never "how much does this person want?" It's "how much can this person repay every month without slipping?" Everything else — the multipliers, the ratios, the policy grids — is just a structured way of answering that one question.

Once you see the structure, your eligibility stops being a mystery number the bank hands down. You can calculate it yourself, tonight, on the back of an envelope. Let's build it the way a lender does.

The quick filter: the multiplier method

The first pass is crude on purpose. Many lenders start with a simple income multiplier: for a salaried applicant, roughly 60 times gross monthly salary — which is about five times annual income. Gross ₹1 lakh a month? The ceiling from this method sits somewhere near ₹60 lakh. The exact multiple varies by lender, age and profession, but the idea is the same everywhere: a fast upper boundary before anyone does real work on the file.

Here's what most people miss: the multiplier is only the ceiling, never the answer. Two applicants with identical salaries clear this filter identically — and then the second method separates them, sometimes by tens of lakhs.

The real decision: FOIR

FOIR — Fixed Obligation to Income Ratio — is the number the sanction actually turns on. The rule is simple to state:

The band moves with income. Lower-income files are often capped nearer 40–45%, because rent, groceries and school fees claim a bigger share of a smaller salary. High-income files may be allowed 60% or a little more, because even the remaining 40% covers living costs comfortably. Each lender has its own grid — but every lender has a grid.

So the working formula a credit analyst runs is:

• Step 1: Net monthly income × FOIR band = total EMI capacity.
• Step 2: Subtract every existing EMI = room left for the new loan.
• Step 3: Convert that room into a loan amount using the EMI per lakh at the offered rate and tenure.

That third step is worth memorising as a thumb rule: at 8.5% for 20 years, ₹1 lakh of home loan costs about ₹868 a month. Every ₹868 of spare EMI room is one more lakh of eligibility.

The worked example: same salary, ₹21 lakh apart

Back to those two colleagues. Both take home ₹80,000 a month. The bank applies a 50% FOIR, so both have a total EMI capacity of ₹40,000. Now their files diverge:

Same employer, same salary slip, same CIBIL band — and a ₹21 lakh gap, created entirely by two EMIs Rahul barely thinks about. This is the single most common surprise I see on home loan files: people count their salary, lenders count what's left of it.

What counts as an obligation — and what doesn't

• Counts: every running loan EMI — car, personal, education, consumer durable, that "no-cost" EMI on the phone. Credit card EMI conversions count too.
• Often counts: a credit card balance you keep revolving month to month. Many lenders treat a slice of it as a monthly obligation, because behaviourally, it is one.
• Usually ignored: loans with only a few months left to run — most lenders exclude EMIs ending within about six months, since they'll be gone before the home loan matures into its rhythm.
• Doesn't count: rent, SIPs, insurance premiums, school fees. These are real outflows, but they're voluntary or non-credit commitments — the FOIR grid ignores them. (The FOIR band itself is set conservatively partly because of them.)

Why your income may be smaller than you think

The other half of the ratio gets a quiet haircut too. On the income side, lenders typically take:

• Fixed salary: counted in full — basic, DA, and fixed allowances that appear every month.
• Variable pay, incentives, overtime: averaged over 6–12 months, and often only 50% of that average is counted. One great quarter doesn't move your eligibility.
• Rental income: usually counted at 70–80% of the rent received, with a registered agreement and rent credits visible in the bank statement.
• Cash income: if it doesn't land in a bank account, for eligibility purposes it effectively doesn't exist. The file can only count what the paper trail can prove.

Four honest levers that raise your number

• 1. Close the small EMIs first. In Rahul's file, clearing the ₹6,000 personal loan before applying frees ₹6,000 of FOIR room — nearly ₹7 lakh of extra eligibility at the thumb rule above. Small loans are the cheapest eligibility you'll ever buy back.
• 2. Add an earning co-applicant. A spouse's income joins the FOIR calculation, and their obligations join too — but for a two-income household with modest EMIs, this is usually the single biggest jump available.
• 3. Stretch the tenure — with eyes open. The same ₹40,000 room supports about ₹46 lakh over 20 years but roughly ₹49.5 lakh over 25 years, because the per-lakh EMI falls to about ₹805. The trade-off is real: the longer tenure costs meaningfully more total interest. Run both versions in the amortization tool before choosing.
• 4. Stop revolving the credit card. A card balance that never clears reads as a standing obligation and a behaviour signal at the same time. Two or three clean statements before you apply improve the file on both fronts.

Run your own file tonight

You now have everything the first pass of a credit desk uses: net income × 50%, minus existing EMIs, divided by ₹868 per lakh. If you'd rather not do envelope math, the Finance Desk has an eligibility calculator and a full amortization schedule — free, offline, nothing uploaded. And if the number you get makes you wonder whether buying is even the right move at your rent, run the honest rent-vs-buy math first.

One last thing. FOIR is arithmetic, but the file around it is judgement — and the document that judgement leans on hardest is your bank statement, read line by line. That's Part 4.