Debt limit on Screening Criteria?

Question

Hi Seattle landlords. Does anyone list particular debt limits (like, "no debt in excess of $1000 that isn't in a payment plan") as part of their screening criteria? I'm wondering what is both legal and advisable in this regard. Also curious if people are still listing a lower limit for credit score and whether that is legal and advisable as well. Thanks for your help, everyone!

Kevin Sobilo · Answer

@Rachel H., why re-invent the wheel?!? I just looked to how underwriting is done with mortgage qualifications.

Front end ratio, and back end ratio.

For the front end ratio I use: Gross Monthly Income >= 3 x Rent

For the back end ratio I use:  Rent + Monthly Debt Payments <= 45% x Gross Monthly Income

In this way, debt is considered in a consistent way in determining if the applicant can afford the rental.

Jay Thomas · Answer

Regarding debt limits, while there's no law against considering debt, the Fair Housing Act mandates avoiding language that might be seen as discriminatory. Instead of focusing solely on debt amount, assessing the debt-to-income ratio (DTI) is more indicative of a tenant's ability to manage rent payments. For credit score requirements, Washington state law discourages setting minimum scores unless a "business necessity" is demonstrated. It's advisable to use a holistic approach, considering factors like rental history, income verification, and references. Legal and advisable screening criteria include income verification (2-3 times monthly rent) and thorough rental history checks with previous landlords.

Kevin Sobilo · Answer

Putting the entire screening criteria in my advertising is not required in my area, but if anyone asks for the criteria, yes that is what I tell them that I'm looking for.

I do the math to figure out these ratios for each applicant which is harder than you think sometimes with people working multiple gig type jobs with inconsistent income because then you also need their tax return to calculate factor their expenses in.

For example, an uber driver might show they are making $3,000 per month but they might be spending $1,000 in gas and maintenance on the vehicle!

Rachel H. · Answer

Thank you. So do you say in your screening criteria that if total debt plus monthly rent payments = greater than 45% of gross monthly income, you will deny the application?

Debt limit on Screening Criteria?

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