Determining Qualifying Criteria
Before detailing how to determine which criteria you will use for your applications, first be aware that you are legally required to inform your applicants of what they are. Making this information part of your application ensures that the applicant both has the opportunity to review the criteria and signs the document attesting as much. There are legal ramifications if this signature is not captured, as the presumption is by default that the information was not provided for review.
Details about the following criteria should be provided:
Specify which kinds of convictions and adjudications will disqualify an applicant. Establishing a clear timeframe will also better inform an applicant with a criminal background as to whether or not you will consider prior convictions from three, five, or twenty years or more in the past. Check out our previous post that discusses the criminal background check! Understand that requiring an entirely spotless criminal record is considered a violation of the Federal Fair Housing Act. Otherwise, having a substantive reason for disqualifying based on certain other convictions and adjudications (namely violence, sexual offenses, and drug manufacturing and distribution) is reasonable.
Previous Rental History
You won’t be relying solely on the information provided to you by the applicant. Using a third party (or several) to verify rental history will help you to establish the kind of renters the applicants are. By having the applicant sign a release form, you will be able to inquire as to whether their rent was paid on time, whether or not any lease violations were documented, if there were any pets with the applicant, and what condition the property was left in. You are entrusting your property to your future tenant, and you want to know that it is in good hands!
The standard household income requirement is a gross total of three times the monthly rent. This comes from section 8 of the Housing Act of 1937 which in 1981 was amended to state that a tenant must pay at least 30% of their monthly income towards housing. Between the rising cost of living and wage stagnancy, some renters in large cities are spending up to two-thirds of their income on housing. According to the 2020 Joint Center for Housing Studies of Harvard University, one in four renters pays more than 50% of their income on rent. If this trend continues, you could expect (due to supply / demand) that income requirements will be reduced to asking that the total monthly household income is only twice the amount of rent. However, three times the monthly rent currently prevails as the industry standard and a change to that threshold is not on the horizon.
Many landlords have a flat credit score threshold for their applicants, while others prefer a context-based approach. Credit scores as we know them today began in 1989. As a landlord, you will most likely use credit reporting to screen your applicant for unpaid debts and other financial burdens that exist outside of their monthly income. While you may decide not to rely on the score itself, you will need to review the report for information that will be pertinent to you as a property owner such as unpaid utility bills, evictions filed against your applicant, and bankruptcies. The leading cause of bankruptcies in America is medical debt, with two-thirds of all bankruptcies filed due to the high cost of healthcare. Being informed of where exactly your applicants stand financially will help you make the best decision in your process.
Failure to provide accurate or complete information on the application form.
As previously discussed, online applications open the door to increased fraudulent activity. If at any point in the process you determine that documents, contacts, or any other information is fraudulent, you can deny based on this alone. If you can’t count on an application being accurate, then you can’t use it to qualify a tenant!
Keep in mind (as always!) that these qualifying criteria standards must fall within the guidelines of the Fair Housing Act. Meaning also that they must be applied to every applicant, every time, no matter what! Standardization not only makes for effective processing, it also protects you in the event that an applicant assumes that they have been unfairly disqualified for your property.
Adding another buffer between you and the applicants is also recommended! You can do this by hiring a qualified and experienced Property Manager who will screen applicants on your behalf. Frontline Property Management has a team of Property Managers as well as a department dedicated to processing applications. Our Tenant Coordinators work every day to handle incoming applications and find you the best tenant for your property!
Contact us today to learn more about how Frontline Property Management manages thousands of doors in Dallas / Fort Worth and surrounding area, and how you can turn your property into truly passive income!