FOIR Check Before Sanctioning a Home Loan
An applicant and co-applicant have combined net monthly income of Rs 1,10,000 (Rs 78,000 + Rs 32,000). Their existing obligations are a car-loan EMI of Rs 9,400, a personal-loan EMI of Rs 3,600 and a credit-card minimum due of Rs 1,500. They seek a home loan of Rs 42,00,000 at 8.75% per annum for 20 years. The property costs Rs 48,00,000, and they can bring Rs 6,00,000 from savings. The lender's policy caps the fixed-obligation-to-income ratio (FOIR) at 55% of gross monthly income, including all EMIs and credit-card minimum dues, and requires at least 10% own contribution. The branch officer computes EMI with the standard reducing-balance formula and must decide whether to sanction, sanction a lower amount, or decline. The applicants also ask whether excluding the credit-card minimum due would improve their case.
1. Calculate the proposed EMI and FOIR. Show the formula and the effect of each obligation.
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Use the reducing-balance EMI formula:
EMI = P × r × (1 + r)^n / [(1 + r)^n − 1]
Here P = Rs 42,00,000, annual rate = 8.75%, so r = 0.0875/12 = 0.0072917 per month, and n = 20 × 12 = 240.
(1.0072917)^240 ≈ 5.718. Therefore:
EMI ≈ 42,00,000 × 0.0072917 × 5.718 / 4.718 ≈ Rs 37,115.
Total fixed obligations = home-loan EMI Rs 37,115 + car loan Rs 9,400 + personal loan Rs 3,600 + credit-card minimum Rs 1,500 = Rs 51,615.
FOIR = 51,615 / 1,10,000 = 46.9%, below the 55% cap. The credit-card minimum adds only 1.4 percentage points; excluding it would give about 45.6%, so it does not change the decision. The car and personal loans are the larger drag, but the file still passes on FOIR.
2. Assess the own-contribution condition and the maximum loan the income supports. Does the applicant need a lower loan?
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Own contribution is Rs 6,00,000 on a Rs 48,00,000 property = 12.5%, which satisfies the 10% minimum. The loan requested is Rs 42,00,000, so the lender is financing 87.5% of the cost.
At a 55% FOIR cap, maximum total EMI = 0.55 × 1,10,000 = Rs 60,500. Existing non-home obligations are Rs 9,400 + Rs 3,600 + Rs 1,500 = Rs 14,500. That leaves Rs 46,000 per month for the home loan. Dividing by the EMI factor 0.008837 gives a maximum loan of about Rs 52,05,000.
The requested Rs 42,00,000 is therefore within income capacity and within the contribution rule. The officer need not reduce the loan on FOIR grounds. Sanction should still be subject to legal and technical clearance, verification of income, and confirmation that the credit-card minimum is not a symptom of undisclosed debt. If income is variable or the co-applicant's income is not stable, the officer should use a conservative income figure rather than the full Rs 1,10,000.
3. The applicants ask to exclude the credit-card minimum due because they pay in full. How should the officer respond?
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The officer should apply the policy as written: credit-card minimum dues are included in FOIR. A verbal assurance of full payment is not enough to exclude a live obligation. The officer may, however, ask for the last three to six months' card statements. If those statements show that the card is cleared in full every month and the outstanding balance is nil at the time of assessment, the officer can place the evidence on file and seek a documented policy exception or treat the minimum due as nil.
The officer should not simply remove the Rs 1,500 because the applicants ask. That would make the FOIR look better without changing the underlying risk. In this case the point is largely academic: the file passes even with the card minimum included, so the honest response is that exclusion is unnecessary. The officer should explain the calculation, confirm that approval does not depend on the exclusion, and still verify that no other card or informal debt exists.