A home loan request that exceeds what the income can service
An applicant, aged 34, seeks a home loan of ₹38,00,000 to buy a flat whose agreement value is ₹48,00,000. Her net monthly salary is ₹84,000, and she has 18 EMIs of ₹11,400 left on a car loan. Branch credit policy caps total EMI outgo at 50 per cent of net income, and caps the loan at 80 per cent of agreement value. Stamp duty and registration of ₹3,20,000 will be paid from her own funds and are not financed. The product rate is 9.10 per cent per annum on monthly reducing balance, maximum tenure 25 years. For quick sizing, the branch uses EMI per ₹1 lakh of ₹906 at 20 years and ₹846 at 25 years. Her spouse earns ₹26,000 a month and is willing to be a co-owner and co-borrower, but will not pledge any property. The branch head wants a one-line answer: sanction ₹38,00,000, sanction a lower amount, or decline - plus the reasoning, because the file is going to audit.
1. Compute the maximum sanction on the applicant's income alone, at 20 years and at 25 years, and check the loan-to-value cap.
Read the worked answer
Step 1 - income available for EMI. 50% of ₹84,000 = ₹42,000. Existing car loan EMI ₹11,400 is a committed obligation, so available EMI = 42,000 − 11,400 = ₹30,600.
Step 2 - convert to loan amount.
- At 20 years: 30,600 ÷ 906 × 1,00,000 ≈ ₹33,77,000
- At 25 years: 30,600 ÷ 846 × 1,00,000 ≈ ₹36,17,000
Step 3 - LTV check. 80% of ₹48,00,000 = ₹38,40,000. This cap is not the binding constraint at either tenure.
Conclusion: the maximum sanction is about ₹36,17,000, i.e. roughly ₹1.83 lakh short of the ₹38,00,000 requested. Stretching the tenure from 20 to 25 years buys about ₹2.40 lakh of eligibility and still does not close the gap.
Two traps sit in this file: forgetting to deduct the existing car loan EMI (which would wrongly show eligibility of about ₹41 lakh at 20 years, comfortably above the request), and applying the LTV cap first and stopping there, since ₹38.40 lakh of LTV headroom is useless when the income cannot service it.
2. Does adding the spouse as co-owner and co-borrower close the gap? Show the arithmetic and state the condition attached.
Read the worked answer
Combined income: 84,000 + 26,000 = ₹1,10,000. FOIR cap 50% = ₹55,000. Less car loan ₹11,400 = ₹43,600 available.
Loan equivalent at 25 years: 43,600 ÷ 846 × 1,00,000 ≈ ₹51,50,000, which is far above the property's LTV ceiling. The binding constraint therefore flips from income to LTV: 80% of ₹48,00,000 = ₹38,40,000.
Result: ₹38,00,000 can be sanctioned, but only on the combined income. Sanity check after sanction: EMI on ₹38,00,000 at 25 years = 38 × 846 = ₹32,148; plus the car loan, total outgo ₹43,548, which is 39.6% of ₹1,10,000 - inside the 50% cap.
Condition attached: the policy counts a co-applicant's income only where the co-applicant is also a co-owner, which she has agreed to be. Her income must be verified as a stable, documented salary; if a material part is variable or incentive-based, the branch should haircut it, and the arithmetic above would then fail. The sanction letter should also record that the loan is serviced from two incomes, so any later separation or job loss reopens the file.
3. Assume the spouse withdraws the offer to be a co-owner but the applicant insists on ₹38,00,000. What levers keep the file within policy, and which of them would you actually recommend?
Read the worked answer
The gap on her own income is about ₹1.83 lakh at 25 years, so the levers are:
- Reduce the loan to ≈₹36,17,000 and fund the shortfall from savings. Cleanest option; the file stays single-income and the LTV headroom is preserved for a later top-up.
- Close the car loan first. That frees ₹11,400 of EMI, raising available EMI to ₹42,000, i.e. about ₹49.6 lakh at 25 years - well above the ₹38.40 lakh LTV ceiling, so ₹38,00,000 becomes sanctionable. This works, but only if the car loan is actually closed and a closure letter is on file before disbursement; a promise to close it is not a lever.
- Stretch the tenure. 20 → 25 years alone is not enough (₹36.17 lakh at 25 years). It helps, but it cannot be the whole answer, and 25 years is the policy ceiling.
- Bring verifiable additional income that policy accepts as her own - for example documented rental income on a property already owned, or a co-applicant who is a co-owner. The spouse in this variant is neither.
Recommendation: offer option 1 as the policy-clean sanction and option 2 as the alternative if she can close the car loan before disbursement. Declining the file outright is wrong - the request is over the limit, but the shortfall is small and both routes above are within policy. Extending tenure past the 25-year ceiling, or counting the spouse's income without co-ownership, are the two shortcuts to refuse.