How to properly screen tenants to find great ones

Choosing the most qualified tenant for your rental property can help keep cash flow from rental income strong and property value high. The best tenants are conscientious about paying their rent on time, and take care of your rental property as if it were their own home.

In this article, we’ll take an in-depth look at how to screen tenants, including how to screen prospective tenants in 7 easy steps.

Always follow fair housing laws

As a landlord, you’re free to choose among the prospective tenants who apply to rent your property, provided that you don’t violate federal, state, or local fair housing laws.

According to the legal resource website Nolo.com, landlords must apply selection standards--such as requiring a minimum rent to income ratio or a minimum credit score--equally to all applicants.

The Federal Fair Housing Act prohibits landlords from screening or denying tenants based on seven protected classes:

• Sex
• Familial status
• National origin
• Color
• Race
• Religion
• Disability

In addition to federal fair housing laws, some states and municipalities offer further protections, such as:

• Age
• Marital status
• Sexual orientation
• Gender identity
• Political ideology
• Veteran status
• Citizenship
• Prior criminal record
• Section 8 Program (or other subsidy program) participant

If your property manager is a licensed real estate agent (almost all are), he or she regularly receives continuing education about compliance with fair housing laws. They will understand fair housing laws in the city your rental property is located in, which will help to ensure you don’t run afoul of any laws and will make oversight of your remote real estate investment easier.

Ask your local manager or leasing agent to explain to you the steps they take to comply with fair housing laws and avoid discrimination.

Now let’s look at the seven steps to follow when screening a tenant.

Tenant screening in 7 steps

It’s important to be consistent and screen every applicant the same way.

When you have a written tenant screening process that complies with fair housing laws, you’re better able to select the best and most qualified applicants--and simultaneously to ward off potential claims of discrimination.

1. Determine your tenant requirements

Begin by determining reasonable criteria for prospective tenants based on the neighborhood your property is located in. Typical benchmarks include education or income level, credit score, and rental history.

One good way to set realistic tenant criteria is by using the Roofstock Neighborhood Rating Checker. If you have a single-family rental home, simply enter the property address to instantly receive a neighborhood rating that includes median income range and percent of people employed in the area.

Understanding the neighborhood profile can be a good way of setting reasonable requirements for a prospective tenant. By doing so, a landlord can reduce the risk of a home sitting vacant for a prolonged period of time because of unrealistic expectations for applicants.

2. Use a rental application

The first step in tenant screening is to require each applicant to complete a rental application.

You can download a hard-copy form from websites like eForms and LegalTemplates.net, or have prospective tenants complete a rental application online using sites such as Avail or TurboTenant.

Some of the key items to look at when you review a prospective tenant’s rental application include:

• Current and past employers, including the length of time at the current job and how frequently the tenant changes jobs.
• Sufficient income to pay the rent plus other living expenses, often measured using the rent to income ratio.
• Monthly debt payments for items such as student loans, car payments, and credit card bills, including balances and minimum monthly payments.
• Previous addresses and contact information for former landlords, to help spot any missing time periods in the tenant’s rental history.
• Personal references including relationship, length of time known, and contact information.
• Other information such as roommates, pets, or special needs.

3. Run background check, credit report, and rental history

After obtaining the applicant's consent, obtain and review consumer and investigative reports, such as a background check, credit report, and rental history report. Reviewing these 3 reports will quickly tell you whether or not the prospective tenant is qualified to rent your property based on the tenant requirements you’ve set.

The background check will provide you with a detailed picture of the tenant’s past, including public records showing if the tenant has or is currently being sued for something, such as unpaid child support or a large medical bill.

Credit scores range from 300 to 850 and are one way to predict how financially responsible the applicant is. Although the exact formulas for calculating credit scores are proprietary and vary among credit reporting agencies, they all consider debt loads and timeliness of debt repayments. It's reasonable to assume that the prospective tenant with a large amount of debt or a history of collections activity or bankruptcies may eventually default on their rent obligations.

A rental history report tells you the addresses where the tenant has previously lived and for how long, including the contact information for the landlord or property manager. Reviewing the applicant’s rental history will also reveal whether or not the tenant has ever been evicted or still owes money for unpaid rent.

4. Verify employment

Computer-generated reports, such as background and credit checks and rental history reports, are important parts of the tenant screening process, but they only go so far.

You may want to double-check the tenant’s employment by calling and verifying with the employer the applicant’s income level and length of employment. Beware of supervisors who can only be reached by cell phone, because sometimes applicants have a friend pretend to be an employer.

For a similar reason, many landlords who have applicants with a large amount of cash income or self-employed tenants ask to see a copy of the tenant’s tax return. While it’s easy for a prospective tenant to have someone write a letter or claim to be making a certain amount of income, reviewing a tax return can often provide a more complete picture of the applicant’s true level of income.

5. Speak with former landlords

Some landlords only ask former landlords to verify the rental amount, and move-in and move-out dates of a prospective tenant applying to rent. However, experienced landlords take the time to dig deeper by asking former landlords some basic questions about the applicant:

• Did the tenant ever pay the rent late?
• Was there any damage to the property caused by the tenant?
• Did you ever receive complaints about the tenant from neighbors or the police?
• Did the tenant receive the entire security deposit back when they moved out?
• Would you rent to the tenant again?
• Is there anything else I should know about the tenant, landlord to landlord?

6. Meet the tenant in person

If the applicant has made it this far in your tenant screening process, the next step is to set up a time to interview the tenant, to learn more about their housing needs and commitment to honor your rental agreement with them.

If the tenant is late, doesn’t participate, or is uncooperative during your interview, that could be a red flag that they’ll be an unreliable tenant.

7. Review your options

The demand for rental property exceeds the supply in many cities, and it’s not uncommon to have more than one prospective tenant to choose from.

Here are ways to review your options for choosing a tenant and to make a decision that is fair to both you and the tenant:

• Follow the tenant requirements you originally set, using objective criteria such as rent to income ratio, credit score, or rental history.
• If all applicants are equally qualified, use the first-come, first-rent basis to lease your property to the tenant who was first in line.
• Don’t go with your “gut feeling” by considering subjective criteria in an applicant such as their lifestyle or whether or not you personally liked them. This can introduce unconscious bias into your decision making and leave you vulnerable to claims of discrimination.

As you review your options for the best tenant, imagine that an applicant you turned down decides to sue. Would you be able to prove to the judge that you were objective in screening tenants?

If you’re not sure, read the next two sections to learn about valid reasons for rejecting a tenant.

How to turn down a prospective tenant

When a prospective tenant is turned down due to bad credit or other factors, the Fair Credit Reporting Act (FCRA) requires the landlord or property manager to comply with the FCRA by sending denied applicants an "adverse action" letter.

An "adverse action" is any action taken by a landlord that is unfavorable to the applicant based upon their credit report, such as declining to rent or increasing the amount of a required security deposit. Also known as a rental application denial letter, the FTC requires that an adverse action letter sent to an applicant that was rejected due to information on a credit report to include:

• Name and contact information of the credit reporting agency.
• Statement that the credit reporting agency did not determine the applicant should be denied, and can not give reasons for why the decision to decline was made.
• Notice to the applicant that they may dispute the accuracy or completeness of any reports.
• Disclosure to the applicant that they may obtain a free copy of their credit report from the reporting agency.
  
  

Valid reasons for turning down a tenant

The FTC notes that there are several valid reasons for declining to rent to a prospective tenant:

• Tenant income does not support the monthly rent.
• Low credit score or poor payment history in multiple accounts.
• Criminal history of the tenant indicates potential risk. However, be mindful that some jurisdictions permit landlords to consider only serious or aggravated crimes.
• Employment can not be verified or work history is minimal.
• Rental history report reveals evictions, property damage, or judgments for unpaid rent.

Be sure to keep documentation that supports your decision to turn down a tenant. Items to save include copies of tenant screening reports, and notes made when you verified employment and spoke with the applicant’s previous landlords.

Key questions to ask every applicant

SmartMove is a product provided by TransUnion Rental Screening Solutions that landlords can use to screen tenants online. According to the tenant screening company, there are 10 key questions to ask when screening an applicant:

1. What date would you like to move in?
2. Do you have pets?
3. How long have you lived in your current home?
4. Why are you moving?
5. How many people will be living with you?
6. How many people living with you smoke?
7. What is your monthly income?
8. Have you ever been convicted of a felony?
9. Have you ever been evicted?
10. Have you ever broken a rental agreement?
    
    

How to screen tenants online

Screening potential tenants online can be a good way to ensure that every applicant is thoroughly screened the same way and to help avoid violating fair housing laws.

Most online tenant screening services are free for landlords to use. They make their money by charging prospective tenants a small application fee.

Some good websites for screening tenants online include:

• Avail is a good way to market vacant property, screen tenants, sign leases, and collect rent.
• LeaseRunner is perfect for landlords, agents, and property managers managing a few properties.
• RentPrep makes tenant screening easy with several packages to choose from.
• SmartMove claims to help landlords get 15% better eviction prediction.
• TurboTenant offers property management software.
  
  

Final thoughts on tenant screening

When screening tenants, it’s important to keep the Fair Housing Act and related laws in mind. Questions should not be asked based on protected classes such as familial status or national origin, and all applicants must be treated the same way.

Using the same criteria to screen every tenant, such as rent-to-income ratio and credit score, is a key component to follow in a tenant screening process. When choosing between multiple applicants, many landlords use the first-come, first-rent basis to rent to the qualified tenant who was first in line.