The rental application is one of the most important documents landlords use. Applications for tenants to rent a property gather essential information that rental property owners need. Prospective tenants should provide details on their income, rental history, employment, and criminal history. Additionally, landlords should get permission to perform credit checks.
- What Makes a Great Tenant?
- What Questions Should You Include on the Rental Application?
- What Can You Not Ask on a Rental Application?
- The Importance of Tenant Screening
- Carry Out Credit Checks for Every Tenant
- Why Require a Landlord Reference Letter?
- Income Verification Letter and Employment History
- What About Rental Application Fees?
- Red Flags on a Prospective Tenant’s Rental History
- Rental Property Management Software to Manage Applications
If you are a new landlord or a property owner with an extensive portfolio, finding great tenants starts with the screening process. The rental application helps you find responsible renters who will pay rent on time, care for your property, and are reliable. Information in the application allows you to ensure that they afford the rent price. Also, references from employers and previous landlords are vital for verifying that what they tell you is accurate.
The application process is so crucial that it’s one of the few ways a landlord can tell a good tenant apart from a risky tenant.
This article is a complete guide on how landlords can process rental applications. You will find out what questions you should ask, how to check credit history, why reference letters are essential.
What Makes a Great Tenant?
Any property owner knows the importance of finding great tenants. The two vital qualities of a great tenant are paying rent on time and caring for the rental unit. But the best tenants should also have excellent job stability, not be involved in criminal activity, and not be overly-demanding.
The application form should contain enough information to assess potential tenants. A bad tenant living in one of your rental units can end up costing you thousands of dollars in eviction fees. That’s not to mention the stress and sleepless nights of dealing with a delinquent tenant.
What Questions Should You Include on the Rental Application?
Getting enough information to assess prospective tenants requires asking the right questions. What should you ask on the application?
Here are questions to ask any tenant who what to rent from you.
It’s vital to get the individual’s full legal name, date of birth, and contact information. If you ask for their Social Security or Driver’s License number, you should have a secure storage method for data protection.
Employment and income history
The person’s ability to pay rent on time depends on their employment status. It’s a good idea to get at least five years of work history to look for patterns. For example, do they show an inability to hold down a job. You should also get an income verification letter. Ideally, tenants should not pay more than 30 percent of their income on rent payments.
You must know their rental history to evaluate what kind of tenant they will be. Ask for references from previous landlords. The application should ask for addresses, move-in and move-out dates, and the landlords’ contact information. Follow through on contacting all these references.
A word of caution — Be careful about getting references from their current landlord. If there are landlord-tenant issues, the landlord may give a glowing reference to help get a bad tenant out faster.
Authorization for background and credit checks
Part of the tenant screening process involves doing background checks. It’s always a good idea to get permission to contact former landlords and employers. However, the potential tenant also needs to approve a credit check and criminal background check.
Using a rent collection app such as RentDrop allows you to carry out the necessary background checks.
Additional Questions to Ask
Most landlords want to get a clear picture of the prospective tenant before approving the application. In some cases, the credit report or landlord references could flag up potentially damaging information. Therefore, it’s a good idea to ask some additional questions for more details. These are:
- Have you declared bankruptcy in the last seven years?
- Do you have criminal convictions?
- Has any landlord evicted you from a property?
Do you have pets?
- Do you or anyone else living with you smoke?
- Have you ever refused to pay rent?
- Will you pay our lease application fee?
- Can you pay the required security deposit?
Top tips when discussing a rental application: Always follow state laws on what you can and can’t ask the applicant.
What Can You Not Ask on a Rental Application?
As a landlord, you can’t ask any questions that violate the Fair Housing Act. Fair Housing laws don’t allow landlords to enquire about anything that could be discriminatory. Questions you can’t ask rental applicants include anything regarding their race, national origin, gender, religion, sexuality, familial status, age, or disabilities.
Even asking certain questions to make conversation could see you facing a lawsuit for potential discrimination. Here are examples of a few questions or comments you can’t make:
- What is your first language? (Race or national origin)
- Were you born and raised in the U.S.? (National origin)
- Do you plan to have kids in the near future? (Familial status)
- You wouldn’t really fit in here if you’ve got kids. (Familial status)
- Are you and your partner married? (Familial status or sexuality)
- You’d love it here because there are lots of minorities.
Is the church you attend local? (Religion)
- I’m sorry, we have a no pet policy, so we don’t allow seeing eye dogs (Disability)
The Importance of Tenant Screening
Tenant screening is the process of evaluating potential tenants. A thorough screening process is the only way to get good tenants, receive rent on time, and avoid evictions. So, you must spend enough time screening tenants before you sign the lease.
It’s vital to remember that screening a potential tenant doesn’t start with the rental application. Screening begins from the initial contact with any prospective tenant. It’s essential to get a good idea of the person and how suitable a candidate they are for the tenancy from the start.
Here are a few reasons why screening a tenant begins with the initial contact:
- Initial contact: During the first conversation, find out their reasons for moving and what their income is. It’s also a good idea to inform them that you’ll require landlord reference letters. Let them know you’ll ask their permission to carry out credit and background checks if they apply.
- Showing the apartment: During the showing, get to know why the tenant is moving and what their interests are. Also, please pay attention to how they talk about the property. Are they already criticizing the unit and suggesting improvements?
- The application process: Carry out due diligence on checking all aspects of the application. This screening includes reference letters, income verification, credit checks, and background checks.
You have two choices if you are unsure about a tenant during any part of the screening process:
- End discussions and move on to another candidate.
- Find out more information to verify the facts.
Carry Out Credit Checks for Every Tenant
Credit checks are a vital element of screening tenants during the application process. Professional property managers and private landlords can request credit reports. The credit report card gives insight into how the prospective tenant pays bills and cares for financial obligations.
The necessary information on a credit report pertains to credit limits, balances, late payments, and the total amount of debt.
Ideally, the best tenants should have a credit rating of between 600 and 650. But in some cases, even excellent tenants could have a lower score. For example, maybe they are renting because they lost their home in foreclosure. However, their credit report shows they are otherwise financially secure.
Here are a few handy tips on what to look out for when checking a tenant's credit scores:
- Usually, a score of around 650 shows that the tenant applicant handles debt responsibly. But pay attention to how they pay current obligations such as credit cards. If credit card balances are high and they are missing payments, it could indicate cash flow problems.
- Previous homeowners tend to be excellent tenants. So, if they’ve missed mortgage payments before selling a home, it may not mean that they will be a bad tenant.
- High debt due to medical bills could affect a person’s ability to pay. Usually, landlords don’t take into account debt accrued due to medical bills. However, it’s still something to consider on the rent-to-income ratio.
Why Require a Landlord Reference Letter?
The landlord reference letter contains information from previous landlords as to the tenant’s suitability. The reference should mention the two key aspects of a good tenant—did they pay rent on time and act in line with the lease agreement. To screen tenants, it’s also a good idea to request additional information.
Requesting a reference letter from previous landlords helps you decide if the applicant will be a good tenant. So, it’s helpful if the letter also includes the following information:
- Was the renter considerate of neighbors and communal areas?
- Did the tenant keep the rental unit clean and tidy?
- Did the tenant cause any damage? And, if so, did they repair it?
- Was the tenant easy to deal with?
- Would the landlord be happy to have a tenancy agreement with the individual again?
Income Verification Letter and Employment History
An income verification letter is a vital element of the rental application to ensure they can pay rent. Usually, the tenant can provide proof of income with recent pay stubs or a W2. Ideally, you should make sure that the tenant’s gross income is more than three times the monthly rent payment.
As well as determining income, employment history is also vital. The application could request history for the previous five to seven years. This information lets you see if they had stable employment. People who have had several jobs in the space of a few years could be risky tenants. Similarly, large gaps in employment could indicate problems holding down a regular job.
Be sure to do due diligence in calling previous employers. It’s always best to check phone numbers against the company’s website. You want to make sure that you’re calling the employer, not the tenant’s friend.
What About Rental Application Fees?
Processing rental applications and screening tenants take time and money. So, it’s only reasonable to charge fees for processing applications. But not all landlords require application or screening fees. What are the best practices when it comes to charging fees?
First, it’s crucial to check with local state laws about charging fees. Some states have a limit on the amount, and others prohibit fee collection. Also, the payment amount should be clearly stated on the application.
Generally, it’s best only to charge application fees for tenants you intend to run a credit report on. But remember that the fee may not include the cost of the credit check. Charging screening fees helps dissuade potential renters who aren’t serious about the unit.
If the applicant is successful, the screening fee’s cost could be included in the first month’s rent. You can decide if you or the tenant pays for the credit report.
Red Flags on a Prospective Tenant’s Rental History
The purpose of a rental application is to carry out a thorough screening process. Letting a lousy tenant live in your property can cost you a lot of money. A delinquent tenant can cut into your profits. And in a worst-case scenario, your landlord business could start losing money.
When considering tenant applicants, it’s useful to know the danger signs. Here are a few rental history red flags to look out for when screening tenants:
- Insufficient income: Use a Rent-to-Income calculator to ensure the tenant can afford rent.
- Low credit score: The tenant credit check shows their responsibleness toward debt and paying bills. Anything below 600 could represent a risky tenant.
- Long gaps in employment: Find out why there were gaps in employment. Sometimes there can be legitimate reasons.
- Negotiating rent:—Tenants who try to negotiate rent during the showing tend to be problematic persons.
- Desperation to move in: Often, reasons for moving in immediately are evictions, loss of a job, or an unexpected move.
- Not forthcoming with information: Tenants with nothing to hide usually are upfront with information.
Rental Property Management Software to Manage Applications
The easiest way for landlords to manage applications from tenants is to use a rent collection app. Rental apps assist with all areas of online property management. Besides online rent collection, you can automatically charge late rent fees, security deposits, arrange renters insurance, and process rental applications.
Additionally, you can require credit checks and background checks, giving the tenant the option to pay for those.
One advantage of using rent collection apps such as RentDrop is that information from rental applications syndicates to the rental agreement. This makes your job as a landlord easier and removes room for error.