Tenant Screening and Qualification

Fair Housing:
First and foremost it is important for both landlord clients and any tenant prospects that make application to rent homes listed by 3 Options Realty, to understand that we fully support and comply with federal and state fair housing laws and rules.  We will never deny an applicant on the basis of their race, color, national origin, handicap, sex, marital status, sexual preference, or gender identity. 

Mitigating Risk: 
Landlords gather personal information in the application process for the sole purpose of determining whether or not a tenant prospect is a good risk. Each landlord may approach this process a little differently, but one aspect seems universal—the landlord wants to gain a reasonable assurance that the tenant will take care of the property, and pay rent on time. It’s really that simple, but the question might then be: What does the landlord want to see, or not see, to make this determination.

History of Financial Affairs:
It is not the “financial picture” of the prospect at the time of application, but rather more about the “financial movie”, or the story, that got them there.  Most important is demonstrated behavior over the most recent few years. For example, an applicant that had once cleaned up a poor credit situation may not be favorably considered because the applicant’s recent history indicates continued and repetitive poor money judgment. So, while it is good that the applicant has overcome the problems of the past, the landlord still may not be comfortable, because evidence of new good habits has either not had time to be proved or has continued to be negative.

Qualification Sources of Information:
Most landlords will look at recent rental history, and job stability. Professional property managers will also look at credit history, and some will even look at criminal background.

Veracity of the Applicant:
Landlords want to see that the prospect is truthful in the application. Therefore, information given on an application will be checked against the responses from past landlords, employers, and the credit report.  A skilled landlord can quickly detect fabricated stories, and such may invariably lead to application denial.

Qualification Criteria:
Qualifying criteria can be widely and diversely applied by different landlords. The fundamental concepts are offered below:

Past Rental stability:
How long has the tenant lived at the same address? Usually, the longer the tenant has lived at the same address the better.

Past landlord reference:
Did the past landlord give a favorable referral? Questions commonly asked of them are: Did the tenant give proper termination notice? Did the tenant get all of the security deposit back? Did the tenant make timely rental payments? Did the tenant tender any or many checks written with nonsufficient funds?

Rental History:
How much has the tenant been paying for rent? Is current rent about the same as the proposed rent, or at least a sensible and justifiable increase based on other financial factors?

Employment:
How long has the tenant worked for the same employer or in the same career field? The longer a tenant prospect has been employed by the same employer the better.

Rent to Income Ratio: 
What percentage of total income is the rent payment (rent divided by net income)? The lower this percentage the better, but most landlords are uncomfortable when this number is greater than 33%.

Credit Score:
Some landlords are concerned with a prospect’s credit score. The only way to know what number the landlord is looking for is to ask that question of the landlord. It is debatable as to the value of this metric for rental application purposes. While is frequently used in this process by professional property managers, 3 Options Realty does not consider it at all. Rather, a decision is made based upon other factors combined.  

Credit History:
While rent is not considered a debt (or credit), the credit report can be very telling about the applicant’s demonstrated money-management discipline. Often times, landlords will simply disqualify a prospect based solely on how poorly they have managed debt. Opinions vary widely across the industry about these criteria. The following are the categories most often weighed, although no single one of them will be grounds for disapproval by 3 Options Realty, Property Managers:

Capacity:
How much of the applicant’s approved credit has been consumed? This is an indicator of the prospect’s money-management skill and discipline. Anything above 50% may cause a landlord to become wary—the higher this number, the greater the indication that such applicants may be living irresponsibly above their means.

Delinquencies:
The landlord’s interest is in the number and frequency of credit lines paid late. Late mortgage and rental payments might be an automatic disqualifier for many landlords.

Derogatory information:
Charge-offs and collections will be weighed heavily against the applicant.

Court Judgments and Liens:
These will be automatic disqualifiers for many landlords, especially if a judgment is recent and is for past due rent.

Foreclosures:
Sometimes the story behind the event will help the property manager deal with this issue, but this can be a deal killer for many.

Discharged Bankruptcy:
Some landlords will automatically deny the applicant for simply having a bankruptcy appear on their record. Others may ask about the circumstances leading up to the event. If the answer is about a financial situation that got out of control, but not directly due to the applicant’s behavior (such as high medical bills), the adverse affect may be somewhat mitigated.

Dismissed Bankruptcy:
This may be considered by many landlords to be a more serious derogatory than a discharged bankruptcy, because it illustrates an unfavorable money management attitude—one that the courts did not accept.

Criminal Background:
Most landlords are uncomfortable renting to convicted felons. However, if a lot of time has passed since incarceration, and the other qualifying criteria are otherwise favorable, this derogatory circumstance might be overcome.  Our criteria for this category is any felon that has served a prison sentence for a period of one year or greater.

Courses of action for concerned tenant applicants:

Fix the Problem:
Whatever shortfalls you may have in your current financial situation—work on improving them. Do not ignore or try to minimize them. Do not make excuses for them. They are a real part of your financial landscape. So recognize them. Understand the debilitating affect they have on your financial history.  Fix the problems, learn from them, and move on.

CAUTION:
Credit repair companies and debt consolidators can sound convincing about their ability to help you clean up your credit, but in reality and in many cases, these outfits are fraudulent or at least disingenuous, and will only put you deeper in debt in financial obligation to them. The National Foundation for Credit Counseling (NFCC) is a legitimate resource. They make no promises, but they can help guide you through the credit repair process.   

Letter of Explanation:
For many of the reasons listed above, if an applicant’s qualification is questionable, the applicant can make a big difference by preparing a letter to submit along with the application explaining the circumstances relating to the incriminating information. Again, don’t make excuses. Rather, truthfully explain how and why things happened, and further explain what you are doing or have done to address the issues. Take responsibility for your past behavior. Carefully and thoughtfully prepare this letter. Have someone edit it for grammar. If you are not a good writer, ask someone that is a good writer to compose it for you. This letter could make all the difference in an approval or denial of your application.  

Referrals:
Don’t be shy about asking your employer and your landlord for written references. If they are willing, enclose these references with your rental application. This will go a long way towards securing an approval.