Despite the fact that there are more people renting in America than ever before, finding a great tenant is no easy feat. From problematic neighbors to job hoppers, sometimes it can feel like it’s safer to have an empty property than the wrong tenant.
If you’re new to being a landlord and haven’t got a property manager, the task can seem daunting. But you’re in the right place; our rental application process guide will walk you through every step from pre-screening to approval.
What Is Tenant Screening?
Tenant screening is a series of steps to qualify renters. It means as a landlord, you don’t have to rely on first impressions, as we all know how wrong they can be. Screening gets rid of many worries like dishonesty, giving you a fuller picture of your prospective tenant; allowing you to make an informed decision as to whether you’d like to rent to them or not. Though there’s no way to take all of the risks out of renting, a properly screened tenant is less likely to cause issues for you and your property later on.
Before you start your screening process, it’s essential you know what you can and cannot legally do as a landlord during this process. The Landlord and Tenants Act allows for screening when finding suitable renters, as well as permitting you to charge a fee for it.
What Does the Law Say?
Your fee should not be excessive and should simply cover your costs incurred to complete the background check, credit report, and time spent. In general, charging a small fee for your rental application will also whittle down prospective tenants, as those who are actually interested in renting your property will pay the small fee, while those who know they have a problematic history may not.
As part of your screening process, you are legally allowed to check a potential tenant’s background, credit report, employment history, and more. However, it is vital that your rental application includes permission to use the personal information given to you for these purposes, as well as their authorization to run these checks in the form of a signature or written consent.
While you are within your rights to reject potential tenants, there are laws surrounding this in the form of The Fair Housing Act. This states you cannot discriminate based on:
- Age
- Religion
- Race
- Sexuality
- Gender
- Familial status
- Disability
- Source of income
This doesn’t mean you have to rent to certain tenants because of their sexuality or disability else you’ll be accused of discrimination. It means you must treat all potential tenants the same during the screening process regardless. You can reject applicants for a variety of reasons including:
- Insufficient/unstable income
- Inability to verify income
- Smoking
- Pet ownership (excluding service animals)
- Credit score
- Poor references
- Relevant criminal record
For potential tenants with service animals, the only exceptions in which you would be allowed to reject based on someone having a service animal is if that animal had shown aggression towards a person, or if you live in the unit and someone in your household has an allergy. We’ll touch on the relevancy of criminal records later as this can get complicated.
Pre-Screening
Though it’s not part of the official screening process, pre-screening can save you time later on by siphoning off candidates you don’t want as tenants.
You can use your rental listing to pre-screen. Include that you have a rental application, as well as any conditions you have for your property, for example, no smokers or no pets. This will immediately put off potential tenants who don’t want to carry out a rental application, or who know they do not fit the basic requirements for your property.
Similarly, when you’re making your first point of contact with a potential tenant, ask the right questions. Why are they moving? What’s their current living situation? When are they looking to move? Make them aware that you’ll require references from previous landlords and their employer. Check they’re comfortable with the security deposit amount. Reaffirm the basic requirements in your rental listing. If any of these answers aren’t acceptable for your property, you can drop the lead.
For those who do meet your requirements and arrange a property viewing, you can use this opportunity to look for red flags. This is why it’s helpful to meet potential tenants individually to show your property. While first impressions can certainly be wrong, you can look out for things like if they turn up late, whether they’re engaged and asking questions about the property, and if they discuss moving forward to gauge their interest in your property.
Rental Application Process
Now you’ve shown your property to potential tenants; you need to get them to complete a rental application to figure out whether you want them living in your property. Rental applications allow you to collect prospective tenants contact details, as well as:
- Employment history
- Income
- Credit report
- Criminal record
- References
With all this information, you can treat it much like a job interview where you use the facts provided to determine the best candidate for your property.
Are Rental Applications Really Necessary?
The average tenant stays in a property for 27.5 months, so just shy of two and a half years. This is great news if you have a tenant who pays on time, looks after your property, and rarely needs assistance. But if you have a tenant who constantly causes problems for neighbors, consistently damages your property, and rarely pays on time, that’s two and a half years of constant headaches.
You want high-quality tenants, and a rental application process allows you to find the best.
What Questions Should I Ask on a Rental Application?
Everyone who is going to be living at the property or responsible for any portion of the rent (such as guarantors or parents) should complete a rental application. You can include whatever questions you feel are relevant to your property on your rental application (within reason!), but in general we’d advise including the following as a bare minimum.
Contact Information
This means their full legal name, phone number, and email address. You can also request their social security number or driver’s license number. Keep in mind, with social security numbers, there is a legal obligation on you to treat that information with care and protect it.
Current and Prior Residence(s) Information
We would suggest asking for five years of address details. This allows you to see patterns in behavior, like whether they’re long term or short term tenants. Calling their current landlord may not be helpful at all if they’re desperate to get rid of these tenants, whereas prior landlords are usually happy to give more accurate references.
Beware some tenants may use their friends, or professional services, to do fake references for them if they’ve previously had a poor relationship with their landlord. Beware overly glowing positive reviews and look out for any uncertainty in responses.
Current Employer and Employment History
Contact information of employers should be provided to validate employment history. It is also worth a quick google to ensure that any contact information given matches the information available about the company online.
In general, an employer will only be able to confirm whether or not an employee is currently employed so these references won’t work in the same way landlord references do. You can look for any gaps in employment and ask further questions to ensure it would not affect their financial viability. You can also use this information to check whether your prospective tenant is a perpetual job hopper as this may also affect their financial stability.
As well as current employer and history, it is also good practice to ask for proof of income in the form of recent pay stubs or a W2.
The Credit Report
A surprising amount of landlords don’t actually include credit reports as part of their rental application. But a credit report gives you vital information about a tenant’s history and is a great indication of how reliable they are financially. The obvious things to check for initially are any bankruptcies, collections, or evictions.
You can also use it to view total debt and monthly payments. This way you can check how much is coming in and going out monthly, then add the cost of your rental property and see if an application still looks strong financially. In general, you want to ensure rent would be no more than 30% of your tenants’ out-goings, depending on location.
Credit reports should also have information on prior addresses, so you can cross-reference this information with that on your rental application form. Additionally, the payment history section can be used to determine behaviors and patterns to check whether your potential tenants are likely to pay on time.
A 2019 study showed the average credit score was at an all-time high of 695. Only you can decide how high a score you require, but typically a good score will be reflective of how responsible and financially stable your prospective tenant is. If your tenant is in the middle ground but has great references and solid income, you can discuss specific issues and the possibility of a co-signer.
Background Check
As we mentioned above, you’re allowed to conduct a criminal background check as part of your rental application (and only if authorized to do so by prospective tenants). However, you’re not allowed to discriminate against potential tenants based solely on their criminal record if it is irrelevant to your property.
The legal guidance is a little convoluted here, but advises landlords when dealing with applications with a criminal record they need to consider five things; severity, recency, frequency, relevance, and legal considerations. This means to use your judgment and use it well.
Take the example of a potential tenant who had a substance abuse issue and a criminal record relating to that. That same tenant has also been in AA for several years and has shown clear steps to improvement. In this instance, it could be discriminatory to reject their application based on record alone. In another example, if a potential tenant has a recent conviction of assault on a neighbor this could be considered as a relevant reason for rejection.
All you need to do is be consistent and fair. As many as 1 in 4 Americans have a criminal record, so ruling out everyone with a criminal record isn’t just illegal, but would severely limit your rental market. For many, a chequered past may not be what it seems, and as long as there are clear signs of improvement they may be a far better tenant than one with little information available.
Rejecting Rental Applications
As we listed above, provided it’s not discriminatory, you can reject prospective renters for a number of reasons. Most often it comes down to low credit scores, late payments, or poor references. Alternatively, some landlords choose to impose other lease requirements on potential tenants instead of an outright rejection, for example, a larger security deposit, a lease co-signer, or an additional month’s rent upfront.
Should I Hire a Rental Property Manager?
If you think all that sounds like hard work – you’re right. Many landlords don’t have the time to go through an efficient rental application process with prospective clients, causing them to rush through and end up with problematic tenants down the line. Property management services can help you market your property across major channels, screen applicants to help you find the best tenants, write clear lease agreements, and more. Whether you just want help with leasing or full property management services, enquire today to see how we can help.
