How To Screen Tenants Fairly For Rental Properties
Owning a rental property can be a lucrative venture for you, but it requires some work on your part, including choosing the people who will live in your property. It’s an important decision. Choose wrong and it could create even more work and drama and could even cost you some money.
To make sure you’re choosing the right tenants for your rental property – and choosing them fairly – you’ll need to know what to look for and the legal obligations you have. We’re here to help with this seven-step guide on how to screen tenants.
What To Look For In A Prospective Tenant
The screening process is meant to assess risk. And those factors that mitigate risk are similar to those your lender used to qualify you for a mortgage. While you can ultimately determine your own parameters, we recommend you create non-negotiable minimum requirements to protect your financial health before meeting prospective tenants.
Potential Tenant Criteria
Setting certain criteria can help ensure you don’t run into problems like late or missed payments, neighbor complaints, criminal activity or eviction. Here are a few examples:
- Minimum credit score
- Healthy credit history
- Proof of employment
- Ability to pay the security deposit and first month’s rent
- Clean background check
There are certain criteria that may allow you to be a little flexible. For example, if the prospective tenant has no credit, a low credit score or red flags on their credit report, you could still go through with letting to them, but only if they have a cosigner on the lease.
Red Flags To Watch Out For
When checking to see if a tenant meets your criteria, these could be a few signs that they don’t. These are also red flags that could indicate potential for problems in the future.
- Unstable employment history
- Late or missing payments
- Criminal history
If you come across any of these red flags, you may want to consider asking the prospective tenant to explain what happened. The reason could be as forgiving as an unknown error in their credit report, a case of stolen identity or, more common for 2020, a negative impact of COVID-19. The prospective tenant could’ve had a rough life that has since set them on the straight and narrow. If that’s the case, you’ll need to determine whether you’ll take the chance that they’re being truthful and if you’re willing to give them a shot.
Apply for a mortgage today!
What To Consider During The Tenant Vetting Process
As a landlord, you have legal and ethical obligations to follow during the vetting process. Here are just a few to consider.
State And Local Laws
As a landlord, you should be aware of local and state landlord-tenant laws and renter’s rights, including local discrimination laws. For example, in several states, a landlord cannot refuse to rent to a victim of domestic violence.
Local laws may also limit things like security deposits, which are often used to show a tenant can afford to live there. For example, in the state of Michigan, landlords cannot require a security deposit of more than 1 ½ months’ rent.
The Fair Housing Act
The Fair Housing Act makes it illegal for you to discriminate against renters based on their race, color, sex, religion, disability, national origin or familial status. That means you cannot refuse to rent to anyone within those protected classes. You also cannot lie about the property’s availability, change renting terms or conditions, provide less-appealing amenities, delay maintenance repairs or evict a tenant based on any of the characteristics listed above.
One exemption from the Fair Housing Act is if you’re renting within a home that you occupy, as long as it has no more than four units. However, even if you are exempt from the Fair Housing Act, you cannot discriminate based on race ever. There are no exemptions for racial discrimination, which was prohibited by the Civil Rights Act of 1866.
How To Screen Tenants In 7 Steps
Follow these steps to set yourself up for success when it comes to determining what type of tenant you wish to have and how to go about finding the perfect fit.
Step 1: Determine Minimum Tenant Criteria
When it comes to creditworthiness, you may want to stay around the average credit score requirement for leasing an apartment, which is around 650. Of course, if the property is a luxury property or in a more expensive area, you may request a higher score.
You’ll also want to determine the financial requirements of signing the lease. Will you require a security deposit? It may be a good idea, as a security deposit not only acts as criteria, it can also protect you from damage to the property or nonpayment. The average security deposit is equal to one month’s rent. Some landlords ask for first month’s rent, last month’s rent and a security deposit while others require first month’s rent and a security deposit or even just first month’s rent and no security deposit. Whatever you choose, make sure it’s in line with local laws.
Along with criteria that meet credit and financial requirements, you should also consider a tenant’s lifestyle. For example, will you allow smoking in or around the property? Will you allow pets? And if so, what kind of pets and how many? Remember, pets and smoking can cause odors and damage to the home.
To help you decide what to require, review other rental listings in the area.
Step 2: Pre-Screen Tenants In Your Rental Listing
Creating a detailed listing will help people determine if they may want to rent the property and if they would even qualify to rent it. It sets the expectations before you even meet them.
By putting such information in your rental listing, you may also be able to weed out potential tenants who may not meet the qualifications or wish to live with certain policies. Upon seeing this information in the listing, they may decide not to tour the property or apply.
Along with describing the property, including the number of rooms and bathrooms and amenities, you may also want to disclose such requirements as:
- Monthly rent
- Security deposit amount
- Rental application and credit report fee
- Background check
- References from previous landlords
- Pet or smoking policies
Remember, quality listings help attract quality applicants.
Step 3: Consider COVID-19
While, hopefully, this won’t be a step in the process much longer, it is important that you think about the additional things you’ll need to consider when it comes to leasing during COVID-19.
- If there are amenities that aren’t available for use during COVID-19, disclaim that in your listing.
- Consider local laws in terms of showings and group gatherings.
- Emphasize the importance of protecting the community.
- Take COVID-19 into consideration when reviewing recent employment history, missing or late payments and evictions.
- Take extra precaution when inviting prospective tenants to tour the property. Enforce mask-wearing, supply hand sanitizer, clean the property after each visit and follow CDC guidelines.
Step 4: Collect And Review Applications And Get Consent For Screening
Request applications from those who are interested in renting your property, so you can learn more about prospective tenants and have the correct information needed to run a credit and background check. The application should include such information as:
- Applicant’s name, contact information, date of birth, license number and Social Security number
- Applicant’s previous addresses
- Names of other occupants who would reside in the home (roommates, children, etc.)
- Employment and income information
- Contact information for personal references
- Additional screening questions about pets, past evictions, reasons for moving, etc.
From the applications, choose which tenants you’d like to screen for further consideration. Before you can pull a prospective tenant’s credit or run a background check, you must get their consent. Get it in writing so you have a record of it.
Step 5: Run Credit Check And Criminal Background Check
When running a credit check, look at more than just the credit score. You’ll want to also use the credit report to confirm:
- The applicant gave you the correct name, date of birth, past addresses and employers
- They do not have past or present financial problems, including any late or missed payments, bankruptcy or too much debt
Depending on what you find in the credit report, you can either move forward with the tenant, consider leasing to them with a higher deposit and co-signer or deny them. It may help to ask the tenant to explain any discrepancies you find.
A criminal background check will help you determine if a potential tenant could put your property or the neighborhood at risk for violence, theft or other criminal activity. It can also help you avoid being held liable and can help with tenant retention. This type of background check will reveal any criminal (felonies and misdemeanors), sex offender and eviction records.
You’ll need to decide if there are any instances in which you may still move forward with a tenant who has a criminal record. Make sure you make considerations on a case-by-case basis. You may want to ask the tenant to explain anything you find and consider how severe the crime was and how long ago it happened.
Step 6: Verify Other Tenant Information
Along with checking credit and criminal background, you’ll want to verify a few pieces of information given by the tenant:
- You can verify employment and income by reviewing a tenant’s recent paystub or W-2 and contacting an employer.
- You can contact their current or previous landlord to learn more about how they are as a tenant.
- You can contact their personal references to learn more about the tenant.
If you wish to learn even more, you can conduct an interview, asking such questions as:
- Why are you moving?
- When would you like to move in?
- How long do you plan to live here?
- How many people will be living with you?
- Do you or anyone you’ll live with smoke?
- Do you or anyone you’ll live with own a pet?
- How many parking spaces would you require?
- Have you had any prior evictions?
Just make sure you don’t ask any questions pertaining to a protected class, specifically.
Step 7: Decide On Tenants And Sign The Lease
Once you’re able to narrow down your list of potential tenants, run background checks and verify their information, you’ll have enough data to be able to choose the best fit for your rental property. You may want to choose a first and second (maybe even a third) choice in case your first finds a different place to rent, instead. Once you decide on the tenant, you’ll want to inform them right away and set up a time to have them sign the lease.
If you don’t already have a lease agreement drafted, we recommend you consult local laws or a lawyer to draft a lease.
The Bottom Line
Choosing the right tenant will help you avoid payment problems, unhappy neighbors and other issues that can arise with leasing a rental property. Follow this guide when deciding how to screen tenants, but make sure you customize your plan to your goals and the risk you’re willing to take.
Whatever criteria and process you choose, make sure to document the screening process, be consistent and consult a lawyer for any legal questions.
Apply for a mortgage today!