How much home loan can you actually afford?

There are two different questions here and they get confused constantly. How much will a bank lend me is an underwriting question. How much should I borrow is a budgeting question. The first has a formula. The second does not, and the formula is a poor substitute for it.

How the lender decides

The main lever is FOIR — the share of your monthly income that all your loan instalments combined are allowed to consume. Most lenders work somewhere between 40% and 50%, with the higher end available to higher earners, because someone on ₹3 lakh a month can give up half of it and still eat.

Run that backwards through the EMI formula and you get the loan it supports. At 8.5% over 20 years:

Monthly income	At 40% FOIR	At 50% FOIR
₹75,000	EMI ₹30,000 → about ₹34,56,925	EMI ₹37,500 → about ₹43,21,156
₹1,25,000	EMI ₹50,000 → about ₹57,61,542	EMI ₹62,500 → about ₹72,01,927
₹2,00,000	EMI ₹80,000 → about ₹92,18,467	EMI ₹1,00,000 → about ₹1,15,23,084

Two things follow immediately. The jump from 40% to 50% is worth roughly 25% more loan — which is why the FOIR a lender grants you matters nearly as much as the rate. And existing obligations come off the top: a ₹15,000 car loan instalment reduces what is available for a mortgage by exactly ₹15,000, so clearing small loans before applying raises the ceiling.

Why the ceiling is not the target

The formula says nothing about the rest of your life. A 50% FOIR leaves half your income for everything — food, school fees, insurance, travel, the boiler that fails, the job that ends. Lenders are underwriting the probability you default, not the quality of your next twenty years.

Three things the formula ignores:

The loan is not the cost of the house. Stamp duty and registration, legal fees, brokerage, the deposit itself, and then the furnishing and repairs that always follow. These are substantial and they land in the same months as your first instalments.

Your rate can rise. On a floating-rate loan, a benchmark increase raises your instalment. Someone at 50% FOIR has very little room for that; someone at 35% barely notices. Stress-test your own figure a point or two higher before committing.

Income is less stable than a payslip suggests. The formula treats this month's salary as a twenty-year certainty. It usually is not, particularly if a chunk of it is variable pay.

A more useful question

Rather than "what is my maximum", try: what instalment could I pay for twenty years without resenting it, including in a bad year?

That number is almost always lower than the ceiling, and the gap is the margin you will be grateful for. A smaller loan on a shorter term also costs dramatically less in total interest, which the maximum-eligibility framing never shows you.

Then check the total, not the monthly

The affordability calculation stops at the instalment. The thing worth seeing before you sign is total cost — on a twenty-year loan, interest commonly exceeds the amount borrowed.

Put the figure you are comfortable with into the home loan calculator and look at total interest rather than EMI. Then try the same loan over fifteen years instead of twenty and compare. The instalment rises; the total falls, often by a great deal.