Rental prices are going up just as home values are. Potential tenants are flocking to new rental listings and are fighting for the opportunity to be approved. This is a prime opportunity for landlords to find solid tenants for their rental properties. There are some key characteristics to look for in a well-qualified tenant.
There is no magic credit score number needed to rent a property. However, if your applicant has a good credit score, it can play an important role in the approval process. Gayle Sato with Experian says, "Landlords check your credit for many of the same reasons lenders do: They want to know if you're likely to pay your bill on time, based on your past history of paying off debt." Landlords should look for evictions, bankruptcies, collections, loan defaults and late payments on credit reports. First and foremost, you want to see that your applicant is paying rent to his current landlord on time. If your applicant has an eviction or bankruptcy on his report, that is not a good sign. Applicants can get a free copy of their credit report here every year from the three credit reporting agencies: Experian, TransUnion and Equifax.
Income and Job Stability
As a landlord you want your applicant to have job stability and qualified income. Andrea Collatz from smartmove.com says, "The industry standard is 30 percent. In other words, no more than 30 percent of a renter's annual income should go toward housing costs." To calculate this, use the formula: (Gross Annual Income divided by 12) X .3= Maximum Monthly Rental Amount. For example, if an applicant makes $60,000 per year, based on this formula he could spend up to $1,500 per month on rent: ($60,000 divided by 12) X .3= $1,500. You should ask for a copy of your applicant's most recent year-to-date paycheck stubs. You can also ask for an applicant's tax documents, W-2 or 1099 showing income as well. Find out how long your applicant has been on the job. If s/he jumps from job to job every year or so, he may be a greater risk.
Criminal Background Checks
It is advised to pull a criminal background check on your applicant. You can discriminate based on criminal activity. However, in an article on smartmove.com, HUD's Guidance for Criminal Background Screening and What it Means for SmartMove Users, it explains that you need to be careful not to have a blanket policy to deny any applicants with a criminal record. It is best to work with applicants who have a criminal history on a case-by-case basis.
Pets and Other Rules
You may have certain rules that you want your tenants to abide by. For example, you may not want pets in your rental property. However, if your applicant has a service or assistance animal, you cannot discriminate based on this. In an article on humanesociety.org, The Fair Housing Act and Assistance Animals it states, "Under the FHA, a disability is defined as a physical or mental impairment which significantly limits a person's major life activities. Even if a lease says, "no pets" or restricts pets, landlords are required to make what is called a "reasonable accommodation" to allow pets who serve as assistance animals, which includes animals who provide emotional support." Another rule you may want to institute is no smoking on the property. This is absolutely permissible. Smoke smell is hard to get rid of and may impact the home value the next time you go to rent or sell your property. Tenants also need to abide by homeowner's association rules and city rules as well. If your rental property has a homeowner's association, you should give your tenants a copy of the rules and regulations.
Do Not Discriminate
The United States has fair housing laws, so you must familiarize yourself with these as a landlord. The U.S. Department of Housing and Urban Development (HUD) has an informative article on hud.gov, Housing Discrimination Under the Fair Housing Act which is a good resource.