What percent of an applicants income to rent do you want?

4 Replies

Do you require that household income be a certain percentage of the rent in order to qualify them?  My Dad told me 25 years ago not to buy a house that the mortgage payment is more than 25% of your monthly take home.  Not sure where the science of that number came from but seems to be a good rule of thumb for someone to live within their means.  What is your rule of thumb on income when qualifying prospective tenants?

Generally I go off of 30% of gross income.

Monthly Rent x 3 < Monthly Gross Income. This is less important in hard numbers the higher you go up in scale, and more important the lower you go, as ratios are less important than hard dollars. Example, for the places I rent ~$600-700, it is very important that they minimally meet this threshold, because there is a somewhat fixed cost to simply existing - buying food, gasoline, etc. If I was renting a place for $2000, it would be a little less important because the ratio isn't necessarily the same - people might have a more expensive car, or eat better food, but not strictly in a ratio formula. $4000 gross income free to pay for everything else is better than $1200 gross income, any way you look at it. 

25% is still a good number for buying a home and like the others I require 3 times the rent in verifiable income.

Originally posted by @JD Martin :

Monthly Rent x 3 < Monthly Gross Income. This is less important in hard numbers the higher you go up in scale, and more important the lower you go, as ratios are less important than hard dollars. Example, for the places I rent ~$600-700, it is very important that they minimally meet this threshold, because there is a somewhat fixed cost to simply existing - buying food, gasoline, etc. If I was renting a place for $2000, it would be a little less important because the ratio isn't necessarily the same - people might have a more expensive car, or eat better food, but not strictly in a ratio formula. $4000 gross income free to pay for everything else is better than $1200 gross income, any way you look at it. 

I also use a Monthly Rent x 3< Gross Monthly Income formula.

I find that if there are no underlying personal issues, then this is sufficient income to pay the rent.  Most of the large apartment complexes in my area also use that formula.  

However, I recently approved someone with a $700 car note and am beginning to think about also doing a DTI ratio. We'll see.

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