FOIR (Fixed Obligations to Income Ratio) is a difference between the net monthly income and all of the assured financial liabilities a person holds including the EMIs of the loan that he/she have just applied.
As per Banks’ guidelines, a borrower can only lend from 45% to maximum 75% of their current net income so a person can manage his debt requirements as well as living expenses. The fixed liabilities analysed for the calculation of FOIR includes expenses for food, rent, transportation, utility and water bills etc. which is essential for living. And by using this guideline, the banks and financial institutions calculate how much loan can be offered to a borrower without being at risk. The higher your FOIR is, the higher loan amount you can get in respect of your monthly income.
How to Calculate FOIR?
Calculating FOIR is simple. All you need to know is your net monthly income and the all of your fixed obligations including the monthly instalment of the proposed loan. Firstly, total the sum of all of your obligations including proposed EMI. Then, multiply by it 100 and divide by your net monthly income. The outcome will be a percentage figure, which is your current FOIR and you can avail the loan against only that much portion of your income.
However, to improve your calculation, you need to understand exactly what components of your income are considered when it comes to net monthly income. Such as, for salaried borrowers, the TA and DA are excluded when net monthly salary is calculating.
How to Improve FOIR?
Include Rental Income
In case you are earning any additional income by renting out your property to someone, then you can include it in your net monthly income to increase your FOIR and be eligible for comparatively higher loan amount. However, if you do so, you must provide the proof of rental income along with regular income documents.
If you don’t have any additional income but still wants to be eligible for a higher loan amount than what you are currently eligible for, then you should consider including a co-applicant to your loan.
If loan is being taken against a security such as home loans, then every owner of the property must be a co-borrower in the loan. In case of other type of loan such as unsecured personal loan, the co-applicant can be any one of your close family member as long as the person have a sufficient and regular source of income. It can be your spouse, father, unmarried brother, unmarried children. However, it is important to know that co-applicant must not be a minor.
In case of you are making your spouse a co-applicant, then she must have a regular source of income other than rental income of the spouse is not considered for eligibility.
Pay Existing Debt
Even if including your rental income doesn’t suffice to avail the loan amount as per your requirements, then you can simply pay-off some of your existing debts either by prepayment facility or by increasing EMI amount if bank/FI allow to do so. By paying off some of your existing debt, reduced the total amount of current fixed obligations which will result in high FOIR.