The full form of FOIR is Fixed Obligations to Income Ratio.
Understanding FOIR
The Fixed Obligations to Income Ratio (FOIR) is a critical metric used by lenders to assess a loan applicant's ability to manage debt. In simpler terms, it represents the debt-to-income ratio.
How Lenders Use FOIR
Lenders primarily use FOIR to determine if an applicant is eligible for a loan. A lower FOIR generally indicates a better ability to repay the loan, as it suggests the applicant has sufficient income to cover their existing obligations and the new loan.
Key Aspects of FOIR
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Definition: FOIR measures the proportion of an individual's gross monthly income that goes towards covering fixed debt obligations.
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Calculation: It's calculated by dividing total fixed monthly expenses by gross monthly income.
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Example: If someone has total monthly debt obligations of $1,500 and a gross monthly income of $5,000, their FOIR would be 30% ($1,500 / $5,000 = 0.30).
Importance for Loan Applicants
Understanding and managing your FOIR is crucial when applying for loans. Keeping your debt obligations manageable relative to your income can significantly improve your chances of loan approval and help you avoid financial strain.
