Impact of Co-applicant and Existing Loans on Home Loan Eligibility

Obtaining a loan is often visualized as a painstaking and time-consuming chore involving a lot of paperback and compliances. 

In this article, we will guide how to avoid the hustle by being vigilant about eligibility computation and existing loans.

We will begin the discussion by understanding the Fixed Obligation Income Ratio (FOIR). 

In simple terms, FOIR can be understood as the proportion of the income available for EMI servicing.  

FOIR norms are determined by the institutions based on the factors like risk capacity, the profile of the customer, monthly income, collateral, credit score, and many more. 

Generally, FOIR ranges between 60%-70% for a salaried applicant and 80%-100% for a self-employed applicant.

Let’s understand FOIR with an assumption that you are a salaried employee having the following particulars:

• Monthly Income: Rs. 1 Lac

• Applicable FOIR as per the institution: 70%

• Running EMI obligation: Nil

Now, the total amount available for servicing for EMI would be Rs. 70000 (Rs.1 Lac*70%).

FOIR has defined the maximum value that is available for servicing of all the EMIs. So, if you are currently serving other loans as well, the EMI of the loans will be deducted from the above amount. 

Let’s say, in the above example, if the EMI obligation already exists, the revised serviceable EMI value will be as under:

• Eligible EMI: Rs. 70000 (Monthly Income * Applicable FOIR)

• Existing EMI: Rs. 10000

The total amount available for servicing for the current EMI would be Rs. 60000 (Rs.70000-10000).

Now, we will talk about what can be done if the calculated amount is not in line with the loan requirements. 

You can have additional applicants added to your loan. Adding an applicant to your loan can enhance your income which eventually increases your loan. 

Family Income can be considered for the calculation of eligibility. However, only blood relatives are welcomed as co-applicant on the loan. Usually, BFSI industries authorize your spouse, your parents, your sibling, or your kids to join as a loan applicant. The norms may vary for the institutions.

Let’s see how with an additional income of a co-applicant, you can enhance your eligibility with the revised particulars in the above example:

• Additional Income of the second Applicant: Rs. 50000

• Applicable FOIR: 70%

• Additional Eligible EMI: Rs. 35000(Rs.50000*70%)

Additional applicants supplemented the customer income and upgraded the serviceable EMI amount by Rs. 35000.  

With the above assessment beforehand, you can have an estimation of the eligible loan amount and proceed with your loan application accordingly.