Having a tenant screening process in place is a crucial step in ensuring a peaceful rental experience. It helps you place the right tenant in your property and avoid late payments, unnecessary maintenance costs or even, resorting to the more drastic move of eviction. However, some homeowners don’t have a systematic way of doing it or have little idea of what to look for.
The purpose of this article is to serve as a comprehensive guide to building a tenant screening process. We’ll go over a tenant screening checklist that could help you eliminate some of the major concerns you have for your applicants.
1. Rental Application Form
A rental application form contains basic information on the applicant and an overview of the applicant’s financial health and rent history.
Most rental application forms include a consumer disclosure form authorizing the landlord to conduct an investigative consumer credit report and background check on the applicant. From this, you will be able to get all the information and requirements needed to perform the other items on our checklist.
2. Credit Report and Credit Score
Performing a credit check is a key part of the tenant’s screening checklist.
A credit report is a statement that shows information about the applicant’s credit activity and his or her current credit situation. It shows you how much money the applicant owes and how he or she manages her or his payments. This gives you a wealth of information to predict whether your prospective renter will pay on time.
You can always ask the applicant to provide a copy of her or his credit report. Yet, it is best practice to perform your own check to ensure the accuracy of the data. To do this, you need your applicant’s basic information, social security number, and authorization form typically found on the rental application form. The most popular services for performing credit checks are Equifax, Experian, and TransUnion.
When looking at the credit report, you have to watch out for any of these things:
- Late or delinquent in paying rent or bills
- Financial activity
- History of bankruptcy and foreclosure
You will also need to check the applicant’s credit score. A credit score is a number ranging from 300 to 850 that depicts an individual’s creditworthiness.
According to a report by American Express, most homeowners require a FICO credit score of 650 or a VantageScore of 638 to lease their property. Setting this up as one of the criteria in your tenant screening will help reduce the risk of nonpayment of rent.
3. Income and Employment Verification
When leasing your property, you have to ensure that your prospective renter has consistent income to pay rent. You usually find your renter’s income in the application form. However, it’s always good practice to verify in case your applicant misrepresents her or his income profile.
Some ways you can verify your prospect’s income are:
- Pay stubs
- Bank statements
- Tax returns
- W2 form
Likewise, if your tenant has some form of side hustle, you want to verify them as well.
Aside from knowing the income, you also have to know if your applicant is still earning that income. The fastest way to confirm this is to talk to the applicant’s employer and confirm the employment status. You can also request a copy of your applicant’s certificate of employment.
4. Rent-to-Income Ratio
The rent-to-income ratio tells you what percentage of the applicant’s income goes to rent payments. It gives you an idea of whether or not he or she can afford your rent. The industry standard used by most landlords as a qualification ratio is 30%. That means the monthly rent should not exceed 30% of the monthly income of the applicants to be considered qualified to enter a leasing agreement.
However, a 2015 Harvard report reveals that 45% of households who make $30,000 to $45,000 a year spend more than 30% of their income on rent.
By using 30% as a screening criterion, you automatically screen out those outside the income range. Even so, the rent-to-income ratio remains a great tool to gauge your applicant’s financial health.
5. Rental Verification
While the credit report tells you about your applicant’s credit habit, your rental verification (also known as landlord verification) tells you about her or his behavior as a tenant.
There are two ways to do this. One way is to ask the previous landlord or property manager for a landlord verification form. Another is to call the current or previous landlord and ask questions.
A landlord verification form is a series of questions that answers:
- If the applicant was up to date with his payments
- If there was any time the applicant was late for payment for more than 30 days
- If there was any trouble with the tenant during his tenancy
- If the tenants have pets and what kind
- If the landlord has ever asked the tenant to vacate
- If the landlord would let the applicant rent again
You can use the questions found in the landlord verification form as a guide when you decide to hop in a call with the current or previous landlord.
6. Pet Screening
If you decide to allow pets on your property, it’s a good idea to require a pet screening before allowing your applicant’s pet to live on your property.
A pet screening is usually performed by the homeowner or a third-party service provider and will help you get an insight into the pet’s behavior.
During pet screening, look for signs of aggressive and destructive behavior. You also want to ensure that the applicant’s dog doesn’t bark excessively to avoid noise complaints.
Also, be sure to check with your homeowner’s insurance provider before setting up a pet policy. Some insurance providers may require additional premiums for allowing a pet on your property.
7. Criminal Records
Another way to ensure the safety of your property, as well as those of other renters, is to check an applicant’s criminal records, if there is.
Although the HUD guidance memo on the use of arrest and conviction record limits the landlord’s ability to deny an applicant, it does allow landlords to deny an applicant who has a pattern of committing violent crimes.
Keep in mind that some states and cities limit the landlord’s ability to run a background check on an applicant’s criminal history. Always check with your state laws before performing one.
8. Public Eviction Records
An eviction record is another piece of information you can gather to determine whether your applicant has a history of trouble with her or his former landlord.
Eviction records are considered public records and it is expected that you will be able to access them by doing a quick search on your local government’s database.
More Tips on Performing Tenant Screening
Establish a Tenant Screening Criteria
Before you start looking for prospective renters, you must already have established tenant screening criteria for the ideal renter you’re looking for.
Here are some examples of questions you want to ask yourself when setting up a tenant screening criteria:
- Do you allow pets in your property?
- What’s the minimum credit score you want to accept?
- Will you allow smoking within the property?
- Are you going to tolerate applicants who have a record of delayed payments but have always managed to pay later on?
- How many residents will you allow to live on your property?
Keep in mind that when setting up a tenant screening criteria, you have to make sure that you adhere to the Fair Housing Act.
This prohibits you from denying any applicant based on race, religion, sex, national origin, familial status, or disability.
Pre-Screen Tenants
Doing the necessary background checks on our checklist takes a lot of time and effort. That is why you want to limit your applicants to only the ones who fit your criteria.
One way to do this is by being transparent about the ideal renter you’re looking for. When listing your property for rent, be specific about your policies and criteria. List down the rules you tend to impose as well as the criteria you’re looking for.
By doing this, applicants who do not meet your criteria will screen themselves saving both the prospect and your time.
Final Thoughts
Performing tenant screening is laborious and performing it requires knowledge of what to look for and time to do it thoroughly.
To cut through the bushes, as they say, you may consider tapping the expertise of property management companies such as Poplar. We conduct a quick and thorough tenant screening process as a part of our property management package.
However, if you decide to do it yourself, be sure to use this tenant screening checklist we provided to reduce the risk of running into problems with your renters.
Recent Comments