Debt to income

[Lilly Fina]

do you factor in debt to income in your rental screening ? 

i set strict qualifications for my rental 3x income credit score of 700. 

A family (unmarried couple  , 2 kids and brother in law ) applied for my 4bdrm rental. They combined met the qualifications above for income and credit score . The couple  alone could not meet the 3x income to rent requirement but with the brother  in law they do .

When pulling the credit report one of the individuals has a high debt to equity ratio (50 %) 

My fear is what if this High DTI and credit usuage could result in one of the parties defaulting on future rent. Am I overthinking this ?

Would you pass on these applicants ? 

[Kevin Sobilo]

@Lilly Fina, yes I do.

First off to be clear when using income for these screening purposes its GROSS income (before taxes). That is the same way a lender would qualify someone for a mortgage.

As you mentioned, I first require GROSS household income to be at least 3x the rent.

In addition, to factor in their debt load, I require the rent + monthly debt payments to be no more than 45% of their GROSS monthly income.

For example: If a tenant applies for a $1,000/month rental and they have gross monthly income of $3,500 they meet the first criteria, but when applying the second criteria you find they have a $500 car payment and $250 child support payment.

When you calculate the 2nd criteria you find the following:

$1,000 (rent) + $500 (car payment) + $250 (child support) > $3,500 (gross monthly income) x 45%

$1,750 > $1575

So, they do not qualify because their debt is too high.

I do NOT think you are overthinking. This is the same sort of criteria a lender uses to qualify people for mortgages. They call them the front end ratio and back end ratio.