What is FOIR in loans?

I contacted a public sector bank for taking a home loan. When I enquired about the eligibility criteria, the customer care executive told me that they can offer maximum 50% FOIR. Though they explained it to me, I didn’t get the term. What is FOIR?

FOIR (Fixed Obligations to Income Ratio) is a popular parameter which banks use to determine loan eligibility. As per bank’s eligibility criteria, the borrowers should restrict all their fixed obligations including the currently applying loan EMI to 50% of his monthly income. Or in other words, considering that 50% of your income is required for your living, banks would see that all your monthly loan obligations / liabilities should be only 50% of your monthly income.

If the calculated ratio is more than the bank’s benchmark, ie ( 50% here), then the bank would restrict the applying loan amount in a way that including the current EMI, your monthly liabilities would come within 50% of your monthly income.

To put it in a simple way, say suppose if your monthly income is Rs.50000/- and you have other loans with EMI 15000. In this scenario, bank would approve you a loan which EMI would be maximum 10000 (if they mentioned FOIR as 50%).

FOIR ratio vary from bank to bank and from case to case, but on an average it would be with 40% to 55%

JFYI, few banks offers 60% FOIR for an individual who has done master’s degree e.g. LIC housing finance.

Regards,
Ashwin

Yes. most banks offer up to 60% FOIR or even more in some cases for professionals. Though some banks advertise that they go up to 60% FOIR for master degree holders, it will not happen in reality if you don’t have a stable job in an MNC or a government job. But if you are a professional ( for example- a doctor), you will get 60% FOIR. Established entrepreneurs also get 60% and above based on the transactions they have wit the bank and their company financials.This vary a lot and is subject to the discretion of credit managers

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ICICI BANK will provide 60% FOIR for salaried as well as for Self Employed.
They go for combined LTV up to 125% for Self employed in that case if your valuation is good you will get more than 60 % FOIR.

For ICICI Home Loan Contact me on 9561507186

Axis bank offers upto 70% foir depends on monthly net salary.
Below 20,000 = 60% foir
Upto 1,00000= 65% foir
Above 1,00000= 70% foir

Hi Sohini,

Fixed Obligations to Income Ratio (FOIR) is the parameter used by banks and other financial organisations to determine an individual’s eligibility for a loan. The FOIR of a person is derived by taking into account all the fixed monthly obligations that he or she should meet without including the statutory deductions such as Provident Fund, investment deductions, or Professional Tax. While additional expenses such as rent can also be considered as fixed obligation depending on the level of income, the FOIR reflects the disposable income of the borrower that can be used to pay off his or her debts - existing and new. Therefore, the loan eligibility of an individual highly depends on his or her FOIR.

The formula for calculating the FOIR is given below:

FOIR = (Summation of All Existing Obligations/Net Monthly Salary) * 100

If the Fixed Obligations to Income Ratio of an individual is 50%, it means that a maximum of 50% of the monthly income of the person is assumed to be his or her living expenditure before the bank disburses a Personal Loan, Home Loan, Car Loan, etc. Therefore, the remaining amount of the income will be considered by the bank in order to determine the loan amount that the individual should be eligible for.

For example, let’s assume a person has a monthly income of Rs.50,000. Considering 50% as fixed obligations, the individual can pay up to Rs.25,000 towards his or her debts. If he or she has 2 existing loans with EMIs of Rs. 5,000 and Rs.6,000 respectively, the borrower is currently paying a total EMI of Rs.11,000. Therefore, the disposable income for the person is Rs.14,000. If this individual applies for a Personal Loan, he or she will be able to avail a maximum loan amount subject to the remaining monthly disposable amount, i.e. Rs.14,000.

A borrower with low FOIR is desirable for financial institutions. This is due to the fact that when a person has a high Fixed Obligations to Income Ratio, he or she has less amount of funds left as disposable income after paying the existing EMIs. If this person is disbursed another loan, there are high chances that he or she will not be able to pay the EMI for the new loan. Thus, this will lead to high credit risk and the chances of banks denying a loan application will also be higher.

While the margin for Fixed Obligations to Income Ratio differs from lender to lender and varies in each scenario, the required FOIR of an individual for loan eligibility for most of the banks ranges from 40% to 60%. However, this can go up to 65% to 70% for a customer with an extremely high net worth.

Looking for a Personal Loan? Click here.

Cheers,
BB Expert

Hi,

What is FOIR that banks consider? What to do if FORI is high?

Hi,

While the margin for Fixed Obligations to Income Ratio differs from lender to lender and varies in each scenario, the required FOIR of an individual for loan eligibility for most of the banks ranges from 40% to 60%. However, this can go up to 65% to 70% for a customer with an extremely high net worth.

If you are worried about your loan approval since your Fixed Obligations to Income Ratio is higher than the concerned bank’s margin then you can apply for a loan with another working candidate. In that scenario, the burden of the payment of EMI will be divided. For instance, a married working couple can easily share the monthly payments, thus, will have better chances of loan approval if they opt to avail a loan jointly.

Looking for a Personal Loan? Click here

Cheers,
BB Expert

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