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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.

The importance of setting strict qualifying criteria

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:

  1. Color
  2. Disability
  3. Familial status (i.e., having children under 18 in a household, including pregnant women)
  4. National origin
  5. Race
  6. Religion
  7. Sex

However, you can set your criteria on things like renting history and relevant financial information.

Qualifying criteria tenants should meet

  1. A good credit score

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.

  1. Clean background check

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.

  1. No evictions

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.

  1. Stable employment history

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).

  1. Adequate income

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.

  1. Positive landlord references

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.

Find out more about tenant screening with Landlord Studio.

When can you deny a rental application?

  1. When they don’t meet your criteria. For example, you might set criteria that the tenant needs to earn a minimum of three times the monthly rent. If the prospective tenant doesn’t they are more likely to fall behind on rent.
  2. Bad credit. This suggests they are not financially responsible. There are many reasons someone might have poor credit and as such, it is not always a definite no however, it suggests they are not financially responsible.
  3. Relevant criminal history. If you run a background check and discover the prospective tenant previously has a record for selling illicit goods for example then you may not want to risk renting to this tenant.
  4. Have evictions on record. There are many reasons that someone might have been through eviction and if a tenant does have a record but is otherwise a great candidate you may want to dig deeper into the reason why they were evicted. That being said, tenants with previous eviction history are three times more likely to go through an eviction.
  5. Poor references from prior landlords. If you go through the effort of chatting with a previous landlord only to find they have nothing but negative things to say about the tenant this could be a major red flag and a primary reason to reject a tenant’s rental application.

Do you have to tell rental applicants they are denied?

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:

  • Requiring a co-signer/guarantor
  • Increasing the security deposit
  • Increasing the rent amount.

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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How do you deny rental applicants?

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:

  • Make sure you deliver a rental application denial letter if your adverse action notice involves consumer reports. And even if it doesn’t, you might still want to deliver formal notice to applicants about your decision.
  • According to the FCRA, your adverse action must be delivered orally, in writing, or electronically. Please keep in mind that even though an oral notice is allowed, written notice has the advantage of providing proof that notice was given. That means applicants won’t be able to claim they didn’t receive notice.

What should be included in your rental application denial letter?

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:

  • The name, address, and phone number of the reporting agency that supplied the report.
  • A statement that the agency who supplied the report did not make the decision and can’t give reasons for why the decision was made.
  • A notice that the applicant can dispute the accuracy/completeness of any reports.
  • A disclosure that the applicant can get a free copy of their report from the company if he or she requests it within 60 days.

Conclusion

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.

Tenant Screening

Ben Luxon

Ben is the editor and lead writer for Landlord Studio. He has worked with real estate professionals all over the world and written educational articles on tech, real estate, and financial growth for sites such as Forbes, TechBullion, and Business Magazine.

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