Tenant's credit at 524

22 Replies

I listed my rental property on Zillow and received a completed application from a prospective tenant who's credit score is 524. Rent for the property is $1600 per month and per the credit report, tenant has a total debt of $611 and combined monthly income of $3,834  from her pension as a retired nurse. My issue is that the tenant stated she recently did a short sale for a home she's occupied for 35 years but other bills were getting her behind on her mortgage payments. Tenants has no bankruptcies and no criminal record. Need suggestions and recommendations .

Did you phone screen her first? She doesn't even meet the income requirement of 3x rent so I would not proceed with her. I would set a minimum credit score and stick to it as much as possible. If you like everything else about an applicant but the credit is short, you can always ask for a larger deposit but with the eviction moratorium, I would not take a chance right now. Surely there is a better applicant out there for this property. 

@Frank Agyeman-Duah   Selecting tenants is SO much easier if you have an established screening criteria that you can base your decisions off of.  Your criteria should be written down and provided to the applicants so they know what it is too.  That way, (hopefully) they'll self-screen themselves and only the ones who qualify will actually bother applying.  

I'm guessing you haven't done that yet, but I highly recommend you do it for future vacancies.  Whether or not you choose to have a minimum credit score as one of your criteria, you should definitely have a minimum income requirement.  The most common is 3x the monthly rent.  I don't think I've seen anyone set their criteria less than 2.5x the monthly rent.  Either way, this applicant doesn't meet the 2.5x or 3x income criteria.  Her income just simply isn't enough to rent your place (regardless of her credit, which isn't great either).

So I agree with @Julie Hartman , I'd pass on this applicant.

Hey @Frank Agyeman-Duah this tenant would be a "pass" for us as well. We care more about their income and how much money is left at the end of the month than we do what their credit score. In this case the tenant's income is too far off from what our requirement would be (net income is 3x the rent), so it would be an automatic pass for us, to the point that we won't even look at the credit score. 

We've placed 60 tenants in the last 2 years. None of them missed a payment through covid, even though CT / MA got hit hard with COVID. 

Set your criteria and trust your gut. 

@Filipe Pereira This is a tenant who just sold her house that she’s lived for 35 years. So said the reason she sold the house was because she fell behind on her mortgage payment. Anyway, thanks for your suggestion. Am still looking into this.

Originally posted by @Frank Agyeman-Duah :

@Filipe Pereira This is a tenant who just sold her house that she’s lived for 35 years. So said the reason she sold the house was because she fell behind on her mortgage payment. Anyway, thanks for your suggestion. Am still looking into this.

I'm not sure I see the correlation between her home ownership and her lack of income to qualify for the unit ? What am I missing? 

 

@Filipe Pereira she said she fell behind on her mortgage payments and had to do a short sale. So the point is, if money is not a problem, how come she could not make her mortgage payments as they became due?

Originally posted by @Kyle J. :

@Frank Agyeman-Duah   Selecting tenants is SO much easier if you have an established screening criteria that you can base your decisions off of.  Your criteria should be written down and provided to the applicants so they know what it is too.  That way, (hopefully) they'll self-screen themselves and only the ones who qualify will actually bother applying.  

I'm guessing you haven't done that yet, but I highly recommend you do it for future vacancies.  Whether or not you choose to have a minimum credit score as one of your criteria, you should definitely have a minimum income requirement.  The most common is 3x the monthly rent.  I don't think I've seen anyone set their criteria less than 2.5x the monthly rent.  Either way, this applicant doesn't meet the 2.5x or 3x income criteria.  Her income just simply isn't enough to rent your place (regardless of her credit, which isn't great either).

So I agree with @Julie Hartman , I'd pass on this applicant.

Came here to say basically this. When you have a written criteria, it becomes a pretty simple pass/fail. Takes the emotion out of it and as long as your criteria is not discriminatory (as defined by federal, state and local regulations), it should help keep you out of trouble in the event that someone you reject claims that you did so for some illegal reason.

 

@Frank Agyeman-Duah there are multiple issues here:

- Credit score is too low, really under 600 is pretty bad. Especially for someone drawing a pension, because that means they are older and should have some credit history at that point.

- Rent is $1600 so usually you will use 2.5 X or 3 X rent as income guideline. Her income is 2.39 X rent so too low by either standard.

- Usually you can use previous landlord reference to show she has ability to pay rent on time. When you have home ownership as previous residence, you need to look at on time payment history for mortgage. It sounds like she had trouble paying her mortgage on time. Odd are good the mortgage payment was lower than her rent, so why will this be any different.

- Short sale is highly suspect given the real estate market in most parts of the country. Short sale means the proceeds from the sale didn't even cover her outstanding mortgage. Whatever the reason for the short sale, it is not good. In some states the mortgage holder can sue her for the short sale gap, so that could add to her problems. 

@Frank Agyeman-Duah

I agree with the other posters here, my issue doesn’t really center around credit score, but establish history of making excuses, and way too little margin between cost of housing and other debts and total income. That is just asking for a repeat of losing her home of 35 years… That is a preestablished track record of unwise handling your finances, and you don’t want that!

Frank,

I read every post and at the end I'm dying because I realize you are like stop everyone, lol. 

But seriously in future situations, I  have went with my gut and not listened to excuses. Except for one that has turned out to be my best tenant in 25 years. But in that case my gut told me to listen past my landlord is evicting me. It turns out that he was getting divorced and had to move back in fast. They have been with me 6 years. 

Good luck

I know you are not renting to her, but for the future, be very careful of the sob stories.  When you look at reality they don't make sense.

How much would a property have sold for 35 years ago?  Probably 1/3 of the price it is worth now.  If in a hot area, maybe even 10% of its current value.

Most home loans are 30 years or 15 years.  Assume hers was 30 years.  Even if she was late or skipped payments 10% of the time, that would get her 30 year loan to 33 years.  So did she miss payments 15% of the time?  It would still be nearly paid off from the original loan, and no reason it would be a short sale.  She would have a hefty profit.

IF she refinanced, well, not likely with a credit score in the 500s.

Either way, how much would her payment be for a 30 year old loan?  OR a refinance on the house?  Likely much lower than the rent you are asking.

Plus, most loans are federally insured and they have a hold on evictions for them now, and they are not processing much for them.  

Not really likely there was a short sale.  And would she short sell the house and be homeless, or pay what rent will cost her, instead of just living there and not paying the payment.  Just staying there  gives her more pocket money.  Its not like they do short sales without the homeowner's consent.  And its not going to hurt her credit to stay until evictions can happen again.  Why would she agree to a short sale?

More likely she is renting and being evicted or afraid of eviction and does not want you to have contact with her landlord and hear how bad she is.

I doubt any of my tenants have a credit score that high ! Guess what I don’t care either . That is relative to how nice the property is . As far as her short sale story on her house .. you can just go ahead and dismiss that as a complete lie . Don’t believe a word a tenant tells you they will say anything to get ahead of it suits them

@Frank Agyeman-Duah side note, I hope your documenting all of this process and hammering out a system from this 1st one, that's the real victory here. I notice your getting down the rabbit-hole a bit on the whole back-story of things. 

You want to have a templated system for; Listings, Tenant pre-screening, showings process, application processing and application decisions. 

Another big item, what did your listing details state on qualifications? You need to clearly state minimum requirements in your listing, and expect people a touch below whatever those are to apply. If you say 640 fico, expect low 600's, even high 500's. If you say 680, crickets, lol. But with that in listing it's easy to deny and no fair housing issues. IF you don't say anything, well buckle up and get ready for the "why'd you deny me? Oh that's BS, your lying, your trying to cheat me" and on and on. And with tenant advocate groups around every corner, yeah, best to head that off at the pass.