Tenant screening is an important part of property management leasing. Without it, you risk facing problems such as late payments, property damage, or legal issues. But property managers need to strike a balance between thorough screening and fast review process, so that they don’t lose qualified applicants.
This blog post covers the basics of tenant screening, why it matters, and the necessary steps to get it right.
The Purpose of Tenant Screening
Tenant screening helps property managers assess the suitability of potential tenants. The main goals of screening are:
- Assess Financial Stability: Verify an applicant’s ability to pay rent on time by checking their credit and income.
- Confirm Rental History: Check an applicant’s rental history to understand how they’ve behaved in previous rental situations, such as whether they followed lease agreements and maintained the property.
- Evaluate Criminal Background: Check that the applicant doesn’t pose a security risk to the property or other tenants by reviewing their criminal history.
Screening helps property managers select tenants who are more likely to pay rent on time, follow lease agreements, and take good care of the property.
Investing in thorough tenant screening lowers the chances of dealing with problematic tenants and promotes a more profitable rental experience.
Key Steps in Tenant Screening
Let’s break down the key steps in tenant screening to help you get it right.
1. Application Process
The screening process starts by gathering the necessary information through a rental application, which should include:
- Personal Information: Name, date of birth, and contact details.
- Employment History: Current and past employers, income, and job title.
- Rental History: Previous addresses, landlords, and rental dates.
- References: Personal and professional contacts who can speak to the applicant’s character and reliability.
Require this information up front to get a complete picture of the applicant’s background.
2. Credit Checks
Running a credit check helps assess an applicant’s financial history. The credit report reveals:
- Credit Score: This score indicates how well the applicant manages financial responsibilities. A higher score suggests lower financial risk.
- Debt-to-Income Ratio: This ratio compares the applicant’s debt to their income. A high debt-to-income ratio signals possible financial strain.
- Outstanding Debts and Defaults: Look for red flags such as bankruptcies, collections, or defaults.
When reviewing the report, focus on a low credit score (below 600), a high number of late payments, or excessive debt. These factors may indicate a higher risk of late or missed rent payments.
3. Background and Criminal History Checks
Running a background and criminal history check helps identify any potential risks. This step helps:
- Verify Tenant Safety: Criminal background checks can reveal whether the applicant has a history of serious offenses, such as violent crimes or drug-related issues.
- Identify Eviction History: Check for any past evictions, which may indicate issues with past rentals.
Keep in mind that some states limit how far back you can look at criminal and eviction records, and there are specific rules for using this information when making decisions. Review the Fair Housing Act along with other relevant laws and be sure to consult a legal professional for the most accurate advice.
4. Verification of References and Rental History
Verifying references and rental history confirms the information provided by the applicant. Reach out to:
- Previous Landlords: Ask about the applicant’s behavior as a tenant—whether they paid rent on time, respected the property, and adhered to the lease agreement.
- Employers: Verify the applicant’s job status and income to ensure they can cover rent.
References provide important insights into an applicant’s behavior and reliability, so be thorough when verifying the information.
Legal Considerations in Tenant Screening
Tenant screening must comply with laws to avoid discrimination and privacy violations. We’ll review broad legal aspects below, but be sure to talk with a legal expert for the most accurate advice.
Fair Housing Act
The Fair Housing Act prevents discrimination based on protected characteristics, such as:
- Race
- Color
- Religion
- Sex
- Disability
- Familial Status
Treat all applicants fairly, regardless of background. Discriminating against someone based on these factors can lead to legal issues. Again, it’s alway recommended to talk with a legal expert that can give you specific advice given your location and particular situation.
Privacy Laws
Follow privacy laws when handling personal information during the tenant screening process. This includes:
- Obtaining written consent from the applicant before running background or credit checks.
- Storing applicant data securely and keeping it confidential.
Failure to comply with privacy laws could lead to legal consequences, so it’s important to stay up-to-date with regulations in your state and at the federal level.
Frequently Asked Questions
What is tenant screening?
Tenant screening involves evaluating a prospective tenant’s background, rental history, and financial situation. This helps landlords decide if the applicant will be a reliable tenant.
How do I comply with the Fair Housing Act?
To comply with the Fair Housing Act, treat all rental applicants fairly and without discrimination based on protected characteristics such as race, color, religion, sex, disability, and familial status.
Why is written consent required for background checks?
Written consent is required to respect privacy laws and to inform the applicant about the checks being conducted. This consent helps to maintain transparency and protects both parties legally.
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