Can you ask for financial obligations on application?

22 Replies

My husband and I are renting our townhouse for the first time and are really struggling picking the right tenant - we've had a lot of interest. We have it narrowed down to 3-4 people, who all seem like great fits. One application did not list out their financial obligations, which we're using to determine their debt to income ratio. Can I press them to list that information? 

Also - 3 out of the 4 are non-married couples...do you guys find it higher risk of one person leaving in those situations during the lease, especially if the couple has not lived together before?

Best to pay for a credit report and ask for a W-2 or several pay stubs and verify employment. 

My limited experience is that any couple, two friends, etc etc is a risk compared to one person whose name is on the lease. Families with kids are mostly a good bet. No matter how well you vet you will someday rent to a bad tennant.

@Lauren Hulsman Our application requires applicants list debts/obligations, which we'll uncover with a credit report anyway but nice to see if there will be any surprises. Running a credit report is always a good idea; it's a tool to assess financial risk but not the whole picture of it. As far as unmarried couples go, they are almost more common than married couples now. And yes, it can be a little messy when untangling things if they break up but we have policies in place for those situations. And honestly, it's no worse than if we have 3 or 4 unrelated roommates, (non-couples), and one of them moves out. 

@Julie Hartman - thanks! My application also has space for debts/obligations, but one applicant left that blank, just wondering if its worth pressing them to fill out. We're trying to only move forward with one applicant to do the credit/background check but want to make an informed decision on who to move forward with. I'm also finding that a lot of people are not putting much emphasis on debt to income ratio for their tenants, as long as their income is 3x the rent - which is true for all my applicants. 

Can you explain what policies you have in place if one person moves out and leaves the other fully responsible for rent?

3x has become somewhat of a "Standard" as an income hurdle. Most leases state the each individual is responsible for the entire lease amount (unless you rent individual rooms). Collecting it from the last last person in the house is another matter. When this happens it is often best to be pragmatic and get them out as soon as possible and move onto the next tennant.

@Account Closed fair enough. Like I said, this is our first time and I’m researching as much as possible to ensure we have the right tenant and making sure we have the most financially secure tenant as this has been my personal home for 7 years, not some random apartment building I own. I’ve also been reading that debt to income ratio is less important as long as they satisfy the 3x rent income, so we are opting to not stress the financial obligations. 

Originally posted by @Lauren Hulsman :

@Account Closed fair enough. Like I said, this is our first time and I’m researching as much as possible to ensure we have the right tenant and making sure we have the most financially secure tenant as this has been my personal home for 7 years, not some random apartment building I own. I’ve also been reading that debt to income ratio is less important as long as they satisfy the 3x rent income, so we are opting to not stress the financial obligations. 

Eric is completely wrong. He's a renter, not a Landlord.

The applicant's debts are absolutely pertinent! I had a tenant that applied for a $700 apartment. His income was $2,500 which was more than 3x the monthly rent. However, he had a truck that was costing him $700 a month in payments and insurance! It was a gas guzzler so you could easily add another $200+ to his monthly expenses. Credit cards and student debt rounded it out. After considering his existing debt, his rent to income ratio was closer to 50%.

It doesn't matter how much you make; it matters how much you have available to spend.

 

We try to make sure that all occupants together have a minimum of 3x rent. When they are married, it seems that this is fine but when they are not married, I up the minimum standard higher - 4-5x together. Ours is dependent on credit and background. Another thought is to up the security deposit for an additional month.

You can make the strongest wage earner the primary tenant, the person to stay if relationships fail.

If I were you I would change my personal income standard and look at maybe adding other standards that reduce your risk of tenants not following through, such as looking at how long they have had their jobs and how long they have co-habitated. Neither of those are discriminatory since they don't address marital status or another protected class.

@Lauren Hulsman I used to have a three page application that asked for all sorts of details including car payments, bank accounts, etc. I moved to a short application process and just require everyone to pull a credit report. It makes applying much easier. I can approve someone pretty quickly just looking at their credit report, although I always verify income and rental references. There is no point in asking the tenant to provide you information that is on the credit report. More importantly, someone with low debt to income could have tons of late payments, so it is not even the best indicator.

There could also be an argument that your screening process is unfair. You are not giving everyone the opportunity to be screened based on credit. An applicant is "self declaring" information, so someone could make it look better on paper by not including certain debts. In other words, someone who is more thorough on the application could be screened out. 

Originally posted by @Lauren Hulsman :

@Julie Hartman - thanks! My application also has space for debts/obligations, but one applicant left that blank, just wondering if its worth pressing them to fill out. We're trying to only move forward with one applicant to do the credit/background check but want to make an informed decision on who to move forward with. I'm also finding that a lot of people are not putting much emphasis on debt to income ratio for their tenants, as long as their income is 3x the rent - which is true for all my applicants. 

Can you explain what policies you have in place if one person moves out and leaves the other fully responsible for rent?

If one person wants to move and they are on the lease, there are a couple of things we do. If the remaining tenant has the income to take it over alone, we do a walk through because the remaining tenant would then take responsibility for the condition of the property. We also charge the tenants a small fee for this if it is outside of the regular lease term cycle. They both have to sign a roommate addendum (the outgoing tenant is relinquishing rights to the deposit). They must work out any deposit split amongst themselves because the full deposit stays with the property. IF the remaining tenant does not have the income to handle it on their own, we do not let the vacating tenant out of the lease until a remedy can be worked out. Usually a new additional roommate is located in this case. Other PM's may handle it differently, but this is how we do it.  

 

@Lauren Hulsman If you run their credit it should list open and closed accounts.  The screening I use also includes balances on credit cards, auto loans, etc... What can help a ton is having a list of your minimum tenant required qualifications.  ex: minimum income 3x rental amount, minimum credit score, etc... Ensure to follow all fair housing. 

@Eric Weldon-Schilling

I disagree with your assessment. I pull a credit bureau on every applicant. I am entitled to know if you pay your obligations on time or not before I rent a 150k or more assett to you. Also, if you have maxed out every credit card, I may want to know that also. I also want to know if you pay your rent, so i will call every landlord you list, and if you have years with no housing listed, I will ask you about that also. One of a landlords primary responsibilities is to make sure the tenant can afford the property.

"making sure we have the most financially secure tenant as this has been my personal home for 7 years, not some random apartment building I own"

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Wrong. You're renting it out, therefore, it is a random building unless you plan on returning to it. Emotional attachment will kill you. We all do it, but it kills us.

Local governments will find that out when all the mom and pop landlords are gone and they're dealing with unreachable corporations and wondering why they can't abuse landlords like they did before.

Income requirements can be 3x rent + car payments.  As long as it's written and applies to all. 

Yes, like car payments, other financial obligations shoukd be factored. 

You didn't mention how much your unrelated applicants smoke or how many animals they have.

it's all a risk assessment.  Unrelated roommates checking up are higher risk than married partners. Fact. 

@Nathan G. Totally agree! What about the applicant making 4000/month trying to rent a $725 unit thst I dealt with a few weeks back? Rent is definitely greater than 3x the monthly rent, but he has three kids with three different women, paying $1600 in child support total and a $800 truck note. You have to get personal and get in their business to really understand their financial picture, else you're potentially stepping in to a lot of trouble.

Originally posted by @Eric Weldon-Schilling:

What all obligations do you want to see? Personally I don’t think it’s any of your business what my obligations are. I don’t get to ask how much your mortgage and property taxes and car note and all that are so you don’t need to know what my bills are. If I make 3x the rent and you get paid you don’t need to know my personal financial information. 
but if I really liked and wanted  wanted the place and the landlord insisted I’d literally just list

Phone service—96

Electric—averaged $75-$110

Credit cards-$300 

I don’t drive right now but I am about to buy a car. I wouldn’t disclose that I had a car note it I didn’t have to. 
im definitely not going to disclose every expense. The landlord doesn’t need to know how much I pay for Apple music or Apple care or Netflix or for credit monitoring for the three bureaus or for news subscriptions 


Ooopsie - jumping right back into idiots-ville yet again. I feel really bad for your brain cells - must be lonely in there. Your landlord, no matter what you think about the ethics of private property and rentals etc in the abstract, is ENTRUSTING you to take care of an EXTREMELY HIGH value asset and you defiantly assert that your financial picture is none of their business? Holy hell! Try telling that to a bank issuing a credit card for a SUBSTANTIALLY SMALLER RISK. Or take a car loan, or take ANYTHING you want to be entrusted with. I wouldn't lend you a skateboard.

Your unicorn rainbow candy floss utopia and the place you actually live are different.

 

Remember though, any data you look at is a snapshot in time. The income could disappear tomorrow. Tenants can go out and buy expensive cars after they move in. Couples can break up, roommates can leave. If you are not comfortable with these risks, then maybe being a landlord is not for you. 

You should screen but don't get carried away with looking for "the best" tenant. Because the best tenant can turn into a disaster with a change of circumstances.

The whole process is based on rigid methodology of credit scores, past rent history on and on. Cost me $35.00 to have a 3 party do it.

@Eric Weldon-Schilling

As a landlord, I do not ask for obligations on an app. Seems a waste of time to me. I pull the credit app and I get everything I need to know. Maybe 20 years ago would require obligations, but the internet has been around for a while and credit bureaus give me all the info I need.