How lenders decide what you can borrow
The two ratios that set your limit, why the maximum is rarely the right amount, and what a lender counts as income that you might not.
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In short
- Lenders cap total EMIs at roughly 40% to 50% of net income. Existing loans and card minimums come out of that allowance first.
- Loan-to-value rules cap the second half: 90% of property value up to ₹30 lakh, 80% up to ₹75 lakh, 75% above.
- The maximum you are offered assumes today's income, today's rate and no misfortune. A 30% to 35% ceiling survives an ordinary decade.
- A ₹15,000 existing EMI reduces the home loan a lender will approve by roughly ₹17 lakh at 8.5% over 20 years.
- Stamp duty, registration and transaction costs — 8% to 12% of property value — cannot be borrowed and must be in cash.
Affordability is decided by two constraints applied together, and the one that binds is usually the first.
The obligation ratio
Lenders cap your total monthly loan obligations — the new EMI plus every existing loan and credit card minimum — at a percentage of net monthly income.
maximum EMI = (net income × ratio) − existing EMIs
The ratio varies with income and lender, roughly:
| Net monthly income | Typical cap |
|---|---|
| Under ₹40,000 | 40% |
| ₹40,000 – ₹1,00,000 | 45% |
| Above ₹1,00,000 | 50% – 55% |
The reasoning is that living costs consume a smaller share of a large income, so more can be committed. It is defensible for the lender and is not a statement about what is comfortable.
On ₹1,50,000 of take-home pay with a ₹15,000 car EMI, a lender working to 45% allows 1,50,000 × 0.45 − 15,000 = ₹52,500 of housing EMI — which at 8.5% over 20 years supports about ₹60 lakh of loan.
Without the car loan the allowance would be ₹67,500 and the loan about ₹77.8 lakh. A ₹15,000 existing EMI costs roughly ₹17.3 lakh of borrowing capacity, which is a far larger number than the car.
The loan-to-value cap
The second constraint limits the loan relative to the asset:
| Property value | Maximum loan |
|---|---|
| Up to ₹30 lakh | 90% |
| ₹30 lakh – ₹75 lakh | 80% |
| Above ₹75 lakh | 75% |
Two details matter. The percentage applies to the property value as assessed by the lender's valuer, which can be below the agreed price — and the shortfall is yours to fund. And stamp duty and registration are excluded from the value for this purpose, so they cannot be financed.
The binding constraint is whichever gives the smaller loan. Someone with a large income buying a modest property is limited by LTV; someone buying at the top of their range is limited by income.
What lenders count as income
Counted in full: basic salary, dearness allowance, and any fixed allowance that appears every month.
Counted partly or not at all: variable pay, incentives and bonuses — commonly averaged over two years and included at 50%, sometimes excluded entirely.
Rental income, usually at 70% to 80% to allow for vacancy.
A co-applicant's income, in full, which is the most effective way to raise the limit. The co-applicant must be a co-borrower, and their own obligations count too.
Self-employed income is assessed from two to three years of filed returns, usually on net profit after depreciation is added back. Declared income is what counts, which is why understating income to reduce tax has a direct cost when borrowing.
The credit score
The score does not usually change the amount. It changes the rate, and sometimes whether the loan happens at all.
| Score | Effect |
|---|---|
| 750+ | Best advertised rates |
| 700 – 749 | Roughly 0.25% to 0.50% higher |
| 650 – 699 | Higher rate, more documentation, possible rejection |
| Below 650 | Frequently declined, or offered by NBFCs at much higher rates |
Half a percentage point on ₹60 lakh over 20 years is about ₹4.5 lakh. Checking your own score costs nothing and does not affect it; a lender's enquiry does, marginally, which is a reason not to apply to six lenders in a week.
The largest single factor in the score is payment history, and the fastest way to damage it is a missed credit card minimum — which counts the same as missing a loan instalment.
Why the maximum is the wrong target
The approved figure assumes your income continues, the rate stays where it is, and nothing goes wrong. All three are optimistic.
The rate will move. Almost all Indian home loans are floating. A 1% rise on a ₹60 lakh loan adds about ₹3,858 to the EMI, and lenders normally extend the tenure rather than raise the payment — which is easy to miss.
Income is not guaranteed. A job change, a business downturn or a medical year all arrive without notice, and the EMI does not pause.
Other things get more expensive. School fees rise faster than salaries in India, and a household budget planned at 45% of income has little room for that.
A working ceiling of 30% to 35% of net income for all EMIs leaves room for a rate rise, a gap between jobs and an ordinary emergency. It usually means buying a smaller property than the sanction letter allows, and it is the difference between a loan that is manageable throughout and one that is manageable only while everything goes well.
What has to be in cash
The loan does not cover the purchase.
- Down payment, 10% to 25% of property value depending on the LTV band
- Stamp duty and registration, 5% to 8% depending on the state
- Processing fee, typically 0.5% of the loan
- Legal, valuation and documentation charges
- Registration of the sale deed, brokerage, and moving costs
Budget 8% to 12% of the property value on top of the down payment. On a ₹75 lakh property with an 80% loan, that is ₹15 lakh of down payment plus another ₹6 lakh to ₹9 lakh — and a plan that accounts only for the down payment is short by a third.
An emergency fund of six months of expenses should survive the purchase intact. Emptying it to buy a larger property converts every subsequent problem into a debt problem.
Improving what you can borrow
Clear small loans first. A ₹5,000 personal loan EMI with a year to run reduces capacity by roughly ₹5.8 lakh. Closing it costs a fraction of that.
Reduce credit card balances. The minimum due counts as an obligation, and high utilisation lowers the score as well.
Add a co-applicant. Both incomes count, and several states charge lower stamp duty where a woman is a co-owner.
Extend the tenure. A longer term lowers the EMI and raises the eligible amount — at a large cost in total interest, so it should be a deliberate trade rather than a default.
Wait for the score to recover if it is below 700. Six months of clean repayment moves it materially, and the rate saved is worth more than the delay costs.
Different loans, different limits
The obligation ratio governs everything, but the rest of the sizing varies by loan type.
Home loans. Longest tenures, up to 30 years, and the lowest rates, because the property secures them. The tenure is usually capped at your retirement age, so a 45-year-old is offered 15 years where a 30-year-old is offered 30 — which reduces the eligible amount substantially at the same income.
Car loans. Three to seven years, 80% to 90% of ex-showroom value, rates two to four points above home loans. Road tax and insurance are generally not financed.
Personal loans. One to five years, unsecured, rates of 11% to 24%. Sizing is usually a multiple of monthly income — 10 to 24 times — as well as the obligation ratio.
Loan against property. 50% to 70% of property value at rates between home and personal loan levels. Cheaper than a personal loan and secured against the roof over your head, which is the reason to think carefully.
Gold loans. Up to 75% of gold value, disbursed same-day with no income check at all. The rate looks low when quoted monthly and the tenure is short.
Where several loans are needed, taking the secured one first usually costs less overall — but every EMI reduces the allowance available for the next one, so the order should follow which loan matters most rather than which is easiest.
Before you apply
Check your credit report, not just the score. Errors are common — a closed loan showing as active, or an account that is not yours — and correcting one takes weeks, which is time you do not have mid-purchase.
Get a pre-approval. It fixes the amount and rate for a period, and it makes you a more credible buyer in a negotiation.
Apply to two or three lenders, not six. Each application is a hard enquiry and several in a short window lowers the score.
Keep six months of clean statements. Lenders read them, and a returned cheque or a bounced auto-debit in the recent past is a problem out of proportion to its size.
What this calculator assumes
- The obligation ratio you select, applied to net take-home income after tax and deductions.
- Existing EMIs are subtracted from the allowance before the new loan is sized.
- A reducing-balance loan at a constant rate for the stated tenure.
- Loan-to-value caps are not applied automatically — check that the amount is within the band for your property value.
- The result is what a lender might approve, not what is prudent. Those are different numbers.