When you first put together your minimum requirements for a tenant, it's important to have rules and stick to them. Fluctuating vacancy rates can make it tough to stick to your guidelines, but just a few false steps will make you remember why you put them in place to begin with. Before you sign an agreement with any tenant, you should have a fairly stringent application process. Decide on the application requirements, including the minimum credit score accepted, whether you'll do a background check, the maximum household number, income requirements, and more. Be sure to know ahead of time what's acceptable to you and what's not when you screen prospective tenants.
Set a Minimum Credit Score
A credit score is often the first and primary criteria in deciding whether to accept an applicant as a tenant. A high credit score usually indicates an ability to pay financial obligations on time. While a lower credit score doesn't always indicate financial irresponsibility, you should always look for tenants with a credit score of at least 700. Always run a credit check and try not to waiver on what you consider an acceptable score. If you do want to make an exception, remember that the number is not the whole story. Be sure to look at the credit report as a whole, and address issues like unemployment or health problems that may have impacted an applicant's rating.
To Do or Not To Do a Background Check
Currently, you're allowed to do a background check and use the information discovered to make a decision about a lease agreement. For example, if you're uncomfortable renting to someone with a felony conviction, you can refuse based on that information. If you choose to use background checks, be aware that the law may change at any time. Keep up-to-date on changes to privacy laws to avoid discriminatory rental practices. If you are unsure about the legality, it's a good idea to seek legal advice before making a decision.
Check on Household Size
While it's illegal to discriminate based on marital or familial status, you can set up occupancy restrictions. For example, you may limit the number of people living in a three-bedroom home to a maximum of seven tenants. Placing limitations on the number of people living in a unit is simply a way to meet fire codes and not the same as discriminating against families with children.
Set Firm Income Requirements
A credit score is one of the easiest things to check about a tenant, but income may be even more important. How much money an applicant earns will directly affect their ability to make rental payments on time. Typically, you want someone who earns at least three times the rental amount. You might even be more flexible on other criteria if they earn four or more times the rent. The more money they earn, the less stress there should be on them to get you the rent payment by the due date.
Ask for References
Be sure to ask for references on any rental application. If a prospect doesn't have any previous tenancy to list, that can be a warning sign. If they do, make sure to call the references and follow up. One phone call might save you thousands in lost rent and property damage.
Advertise Your Requirements to Avoid Issues
Sob stories and sympathy might make you more likely to bend some of your rules. Avoid this whenever possible by letting applicants know your guidelines ahead of time. If you tell prospective tenants that they need a 700 credit score to be approved, they'll be less likely to pay the rental application fee if they don't have confidence in their credit score. The more information you give applicants, the less likely they are to apply if they don't make the grade.
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