When handling a rental application landlords must follow best practices and any applicable laws, such as the Fair Housing Act and state laws.
The tenant screening process starts with your rental advertisement and ends with you signing the lease and handing over the keys. In between this point though you will need to deal with numerous prospective tenants and you need a clearly defined way of determining which tenant applicants are best and which tenant rental applications you should reject.
There are a few things that you can look at throughout the tenant screening process that can help you make the best choice and minimize the risks associated with renting to a poor applicant. However, when running tenant applicants through your screening process you have to make sure you are consistent, and that any rental applications you do deny are done so on legitimate and legal grounds.
You always want to be sure you’re following best practices and any applicable laws you’re subject to such as the Fair Housing Act and local housing laws. In this article, we take a look at how and when you can legally reject a tenant’s application.
By setting strict predetermined parameters for who you will and won’t rent to based you can simplify your tenant’s screening process and help you avoid potentially bad tenants. Even if none of the applicants qualifies – it’s better for your property to be vacant a little bit longer than to have a bad tenant that you may need to evict in the end.
It’s also important to have clear predetermined criteria so that you can justify rejecting a tenant. Your qualifying criteria then are a set of legal reasons why you might choose to reject a tenant’s application.
When setting your qualifying criteria make sure you take into consideration applicable laws. For example, the fair housing act prohibits discrimination against any of the protected classes which include the following:
However, you can set your criteria on things like renting history and relevant financial information.
Having a high credit score suggests that the tenant is not currently in any unmanageable debt which could affect their future rental payments. It also suggests that they are financially responsible.
You might, for example, set a parameter that you won’t rent anyone with a credit score below 650.
A tenant’s credit score is a good way to get a quick indicator of whether or not they will be a good tenant that pays rent on time and in full every month. However, it doesn’t give much in the way of detail so it’s well worth pairing this with additional qualifying factors.
As the landlord you are responsible for taking into account your neighbors additionally should it be found that the tenant is running an illegal operation from your rental you could find yourself liable.
An applicant with a clean criminal check could be a good indicator that you can trust them with your property and the neighborhood. You’ll want to be sure to perform a criminal check at both the state and national level that includes Most Wanted Databases and the National Sex Offender Public Registry.
According to TransUnion research residents that have previously been evicted are as much as three times more likely to go through an eviction again. Since prior evictions are predictive of future evictions, an eviction record should be a warning sign that landlords take seriously.
Although a blank eviction check is a good indicator that the applicant has a positive rental history, you’ll still want to conduct a landlord reference check to make sure the prospective tenant’s behavior at prior residences was up to par.
When screening tenants and deciding whether or not to reject a rental application you primarily want to determine whether or not the prospective tenant will pay rent on time and in full every month.
A person who has held the same job for several years and does not have significant gaps in employment could demonstrate that they have a steady job and income. Not only is this a good sign that the tenant will likely pay rent on time, but there’s also a good chance they will renew their lease since they don’t have a history of changing jobs frequently (requiring multiple moves).
While a credit report is a great indicator as to a prospective tenant’s financial responsibility it is also crucial to verify whether or not the tenant actually makes enough money to afford the rent as well as the cost of living. A ratio of three times the income to rent is the industry standard, which typically shows that if any unforeseen expenses come up for the applicant, they are more likely to have enough money to pay their rent.
Finally, you should contact their previous landlord and ask them what it was like renting to this tenant, and whether or not they were any trouble at all. Most landlords will be happy to have a quick chat and as previous behavior is often predictive of future behavior this is often a very effective way to get important information about the prospective tenant. For example, you might ask whether or not they paid rent on time, complained a lot, and whether or not they looked after their previous rentals.
In addition to being courteous, letting applicants know when and why they are rejected can be a really important step required to avoid legal issues. According to the Fair Credit Reporting Act (FCRA), you must provide a rental application denial letter if you take an adverse action against an applicant based in whole or in part on any consumer reports. Put simply, if a credit report, credit score, background, or eviction report factored into your decision to deny their rental application (even a little bit), then you must notify the applicant.
An adverse action is when you either 1) deny an applicant, or 2) increase your requirements for applicants based on their applicant profile. The latter is known as an “accept on condition”.
You can accept applicants on the condition by:
Remember that even if your decision is not based upon any consumer reports, you still might want to consider sending a rental application denial letter as a precautionary measure. It shows you are being transparent with your applicants and allows you to establish a paper trail for how your decision was made.
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When the time comes for you to deny rental applicants, there are two really important things to keep in mind so you do it the right way:
Regardless of the rental application denial letter you use, there are a few required pieces of information you must include according to the Fair Credit Reporting Act.
Requirements for rental application denial letters:
It is important to follow best practices and legal guidelines when selecting a tenant for your rentals. Not doing so could see you renting out to a tenant who is not able to pay their rent on time every month or worse, you could end up in a situation where you are needing to evict your tenant.
However, when determining which applicants to consider and which you’re not going to you need to make sure you are denying rental applicants based on legal grounds and that when you do reject a tenant you do so properly with a rental application denial letter for transparency for both parties and to avoid any potential legal issues down the line should a tenant believe they have not been treated fairly.