Have you ever wondered why banks and finance companies grant home loans to some people immediately, while others are rejected despite having all the documentation?
The real reason isn’t just your income or CIBIL score—
but rather, there’s a hidden factor that every bank and finance company checks when granting a home loan—
that’s FOIR (Fixed Obligation to Income Ratio).
If you’re considering a home loan or want to understand loan eligibility, then be sure to read this article completely.
Because today we’ll learn what FOIR is, what its role is, and how you can improve your FOIR to get the maximum loan amount.
What is FOIR? (Simple Explanation)
FOIR stands for Fixed Obligation to Income Ratio, which is the ratio between your monthly fixed obligations (like EMIs, rent, credit card bills) and your monthly income.
In simple terms: –
The bank wants to know how much of your monthly income is already going toward expenses or EMIs—and how much is left over for loan repayment.
Example: –
Let’s say your monthly income is ₹60,000,
and you already have an EMI of ₹15,000 (such as a car loan, personal loan, etc.).
Then your FOIR would be:
FOIR = (15,000 / 60,000) × 100 = 25%
This means you’re already spending 25% of your income on liabilities.
What role does FOIR play in a home loan?
The bank looks at the FOIR to determine how much you can comfortably repay on a new loan.
👉 If your FOIR is low (40%-50%),
the bank believes you’ll be able to easily repay the loan,
and your chances of loan approval increase significantly.
👉 But if the FOIR is above 60%-70%,
the bank believes you’re already spending a significant portion of your income—
therefore, the likelihood of loan rejection or a lower amount increase.
What should the ideal FOIR ratio be?
The FOIR limit varies from bank to bank, but in general:
| Applicant Type | Ideal FOIR Range |
|---|---|
| Salaried Person | 40% – 50% |
| Self-Employed | 45% – 55% |
| Joint Loan (2 applicants) | 55% तक acceptable |
👉 Meaning, if your income is ₹60,000, the bank wants your existing + new EMI together to not exceed ₹30,000.
Understand with a real-life example
Case 1: –
Ravi’s salary is ₹70,000 and he has a car loan EMI of ₹10,000.
He applies for a home loan.
FOIR = (10,000 / 70,000) × 100 = 14%
Low FOIR = High Approval Chances ✅
👉 The bank is willing to easily give Ravi a home loan of up to ₹35–40 lakh.
Case 2: –
Amit’s salary is also ₹70,000, but he already has an EMI of ₹25,000.
FOIR = (25,000 / 70,000) × 100 = 36%
Now the FOIR has increased slightly.
👉 The bank will be cautious here and limit the loan amount to ₹25–30 lakh.
How is FOIR calculated?
Formula:
FOIR = (Total Monthly Obligations / Gross Monthly Income) × 100
Where:
- Total Obligations = All your EMIs, rent, loan installments, etc.
- Gross Income = Monthly income before taxes or deductions
👉 If you want, you can quickly calculate this ratio with our Home Loan FOIR Calculator.
How to Improve FOIR? (Practical Tips)
If your FOIR is high and your loan is repeatedly getting rejected,
these 5 smart steps will help you 👇
- Close Existing Loans: –
Clear small personal loans or credit card dues first.
- Add a Joint Applicant: –
If both spouses have income, a joint loan will reduce the FOIR.
- Extend Loan Tenure: –
Taking a longer-term loan reduces EMIs, thereby reducing FOIR.
- Update Income Proof: –
If you recently received a salary increase, provide an updated slip.
- Compare Banks with Low-Interest Rates: –
Lower interest rates will reduce EMIs as well—the FOIR will automatically improve.
Why do banks attach so much importance to FOIR?
Because for banks, FOIR is a signal of repayment capacity.
Just as a doctor assesses a patient’s health by looking at their heart rate, Banks use FOIR to determine a borrower’s financial fitness.
High FOIR = High Risk
Low FOIR = Safe Borrower
Therefore, this ratio plays a crucial role in a bank’s loan policy.
FOIR vs DTI (Debt to Income Ratio) – What’s the difference?
Both terms sound similar, but the difference is this:
- FOIR only considers your fixed EMIs and income.
- DTI includes all your liabilities (bills, rent, credit card expenses, etc.).
Most banks in India use FOIR because it’s more realistic and easier to calculate.
Conclusion
Taking out a loan is easy these days,
but getting approval is only possible if you pay attention to your financial fitness.
FOIR is not just a ratio, but a report card of your trustworthiness.
So, if you want to make your home loan dream a reality,
first understand FOIR and keep it accurate—
because a good FOIR = easy loan approval = your dream home is over!
Calculate your FOIR now,
visit the Home Loan FOIR Calculator Tool, which is an excellent tool that also gives you suggestions on what you should do.
This will easily help you determine your repayment capacity and how much it is.