What You Need To Know About Applications And Tenant Screening

After posting your carefully crafted listings, you finally have the names of several prospective tenants. 

But you shouldn’t accept just anyone. If you don’t take the time to verify that they will make a good tenant, you could face consequences. The only way to avoid problem tenants is to prioritize tenant screening. 

Slacking on screening is a recipe for late payments, tenant arguments, or even legal trouble. 

The first step in tenant screening is crafting a rental application. By gathering as much information as possible from your applicants, you can get a good idea of whether their tenancy will be a mutually beneficial arrangement. 

In this article, we break down the basics of tenant screening, from rental applications and background checks to the fundamental fair housing laws. 

The Process 

Tenant screening typically involves five steps: 

1. Rental Application 

2. Proof of Income 

3. Credit Check 

4. Criminal Background Check 

5. Eviction History 

Each component provides key information about a potential tenant. Below we outline each step. 

Rental Applications 

A rental application is a preliminary form requesting basic information about a tenant and their eligibility. They can be on paper or digital. Allowing renters to submit a rental application online will help more prospective tenants to consider your rentals. 

Rental applications typically include basic contact information, residence information, employment history, a request to run a credit check, legal disclosures, and other questions. 

Basic Contact Information 

First things first: you need your applicants’ contact details. In addition to their full legal name, ask for an email address and cell number. 

Landlords have also asked for a Social Security Number (SSN) or driver’s license. We recommend against collecting this sensitive information because the laws governing how landlords should handle SSNs are strict. Instead of risking legal trouble, you’re better off using a digital service to run credit and background checks. 

Current and Prior Residence Information 

Next, ask renters to list their renting experience. Generally, five years of rental history is enough data to observe patterns.  

Does the tenant make consistent on-time payments? Have they had long-term tenancies, or do they tend to move around? Patterns like these can help you predict how the renter would behave as your tenant. 

Landlord References

When it comes to residence information, you shouldn’t just take your applicant’s word for it. Ask for references and contact information for all their current and previous landlords.  

Then, follow up with these individuals to confirm what the renter reported. Many landlords are tempted to skip this step. However, calling references is one of the easiest ways to prevent rental application fraud.  

Prior landlords have little reason to lie, so they are likely to be honest about a tenant’s behavior and habits. 

Employment History 

You should also request a brief employment history for each applicant. Ask them to list current and prior employers.  

Employer References

Just like landlord references, employer references are a critical step you should never skip. Ask for the contact information for someone at the company they listed to verify that they do indeed work there. 

You may also need to retrieve the applicant’s written consent to validate their employment claim. In this case, include the consent form with your application before following up with references. 

Written Permission to Run a Credit Check 

Rental applications should also ask for applicants’ written permission to run a credit check. Without this consent, you cannot receive a credit history for an applicant or therefore approve their application until they do so. 

Legal Disclosures 

Each state requires landlords to make different legal disclosures. These disclosures must be included in both your rental application and lease document. 

Here are a few disclosures that may be required in your rental applications: 

• Applicants’ Assurance – Verifies that the information the tenant provided is true and states that denial will follow an incomplete or falsified application. 
• Non-Refundable Fees – If nonrefundable application fees are legal in your state, you may be required to disclose them. 
• Liability – Release yourself and your company from any negative consequences that may occur because of your running credit or background checks. 
• Extended Authorization – States that any information an applicant provides on the application may be used during or after their tenancy.  
• Holding Fee – States the procedure of reserving the unit via a security deposit or holding fee. 
• Move-in Requirements – Explains what an applicant would need to do before move-in. 

Additional Questions 

Rental applicants are also your opportunity to ask about pets, smoking, or any other preferences.  

However, be wary of your phrasing. Questions about income, job history, and rental experience are fair game, but avoid potentially discriminating questions like:  

• “What religion do you follow?”  
• “Do you have any children?”  
• “In what country were you born?” 

Asking these questions violates fair housing laws. Do not include them on your rental application. 

Proof of Income 

During or after submitting a rental application, your tenants should also provide proof of income/ proof of funds documentation. This is usually in the form of official documentation from a bank or financial institution. Proof of funds can also be established with a government document like a tax return.

The most common documents used for proof of funds are pay stubs, bank statements from a checking or savings account, and W-2 forms. However, these documents may also be used: 

• 1099 Form 
• Federal Income Tax Return 
• Letter from employer 
• Social security statement 
• Annuity statement 
• Pension disbursement 
• Workman’s compensation letter 
• Court ordered awards letter 
• Interest and dividend income 
• Investment account statements
• Severance statement  
• Proof of bonus or incentive payment 
• Unemployment statement 

In general, you’re looking for an applicant with both sufficient and reliable income.  

Sufficient income means that the renter earns enough to afford your rent. Rather than choosing which amount of funds qualify arbitrarily, most landlords require that tenant income be at least three times the monthly rent amount. 

Reliable income means that the renter gets paid regularly and consistently. This doesn’t necessarily mean that the renter needs a long-term position at one company, although that is always a good sign. Freelancers, for instance, don’t work for one company but can still earn reliable income if they have a steady flow of clients.   

Another tip for landlords is to keep an eye out for forged documents, such as a fake bank statement or unofficial proof of funds letter from a financial institution. A proof of funds letter from a bank should clearly state the official bank statement balance, with the proper logos, signatures, etc. to verify authenticity. If you use a tenant screening service, their software might automatically check funds letters and other forms to weed out fake documentation.

Credit Checks 

Credit reports contain information about an applicant’s credit activity. The three major credit reporting companies that store this data are Equifax, Experian, and TransUnion. 

Credit reports provide insight into how renters handle their money.  

Every credit report includes: 

• Personal Information – The applicant’s name, address, and sometimes employment history or marital status. 
• Fraud Indicators – Shows invalid phone numbers, addresses, and SSNs. 
• Tradeline Summary – A snapshot of the applicants’ active accounts and their payment histories, including credit cards, car loans, loans from a mortgage lender, and student loans. 
• Inquiries – A list of companies that have recently viewed the applicant’s credit file. 
• Credit or Resident Score – A number from 300-850 representing the applicant’s creditworthiness. A resident score is a credit score specifically for renters, with factors given different weights based on their relevance to rental housing. 

A credit score is based on factors like age of credit, types of open accounts, and application histories. Trustworthy tenants tend to have credit or resident scores between 700 and 850.  

While it might be tempting to skip straight to this number, be sure to review all components of a credit report. Even one late payment could tank a score if the credit line is relatively short. It might be worth asking for an explanation from an otherwise qualified applicant. 

Criminal Background Checks 

Criminal records include public information about an applicant’s prior convictions, misdemeanors, arrests, sentences, and other court verdicts. 

They can be obtained via national, state, or county records. Local sources are likely to have more accurate information, but they take longer and cost more. National searches are your quickest and broadest resource as they are typically bundled with the National Terrorist Watchlist and Sex Offender Registry.  

Tenant background checks protect you and your tenants from violent or illegal activity. They also reduce liability in your rental business. The easiest way to avoid the courtroom is to run a criminal check on every applicant. 

Eviction Histories 

Eviction histories include civil judgment court records, case numbers, dates, locations, reasons, and court results for renters’ prior evictions. 

Eviction records are no longer included in credit checks, so you’ll need to use a service to locate records. However, even a reliable reporting service can fail to give you the full picture. There are several reasons why a prior eviction may not show up during screening: 

• The report was state-wide, and the eviction occurred in another state. 
• The court has not officially filed the eviction case yet. 
• The tenant who didn’t pay rent left voluntarily before a formal eviction process, so a public record was never created. 
• The eviction is old and was removed from public records. 

Because eviction reports are not fail-safe, you must follow up with prior landlords to learn what might not have been included in the formal screening. Even one eviction (or equivalent circumstance) is grounds to deny an application. 

Fair Housing 

Each step in the tenant screening process (applications, credit histories, references, etc.) is subject to fair housing regulations.  

Landlords generally cannot discriminate against renters based on personal characteristics or identities. In practice, this means screening all tenants the same way: performing the same steps and procedures and asking the same questions to every applicant. 

Federal Protections 

There are three main federal laws pertaining to fair housing: 

• The Fair Housing Act (FHA) protects tenants from discrimination based on race, color, national origin, sex, religion, familial status, and disability. 
• The Americans with Disabilities Act (ADA) prohibits discrimination against individuals with disabilities in housing and employment. Landlords must make reasonable accommodations for disabled tenants, including modifying pet rules to allow service emotional support animals to live in rented units exempt from pet rent. 
• The Fair Credit Reporting Act (FCRA) limits how credit bureaus can collect and share consumer report data. It promotes the accuracy, equality, and privacy of personal information. 

State Protections 

Almost every state (46) lists additional protected classes beyond those included in the FHA. These classes include sexual orientation, gender identity/expression, age, ancestry, source of income, military status, marital status, pregnancy, HIV/AIDS, genetic information, and domestic violence victims. 

Many states and localities also limit how landlords can use criminal background checks. The strictest laws prohibit the consideration of criminal records at all. Other states limit the types of convictions that can be used as justification for denial. 

Fair Housing Tips 

Here are a few tips for complying with fair housing laws during screening: 

• Set standards and minimums. Minimum income, credit, and rental experience requirements objectively measure an applicant’s eligibility. 

Another option is to use a tenant scoring system. Tenant scoring systems use a weighted point system to standardize the applicant acceptance/denial process. Each characteristic (e.g., “Applicant’s credit score is above 700”) is assigned a point value. By summing the points, you can easily compare scores and determine the most qualified applicant.  

Tenant scoring is an easy way to prove that you perform the same checks and steps for every tenant. 

• Define and write down your screening procedures. In case of a discrimination lawsuit, you’ll already have proof that your policies are fair. 
• Use caution on social media. It’s easy to go looking for reasons to deny an applicant on social media. Either avoid social media screening altogether or use the same platforms and searches for each tenant. 
• Research state and local laws. Know which laws apply in your area. 

Conclusion 

Tenant screening is one of the most involved responsibilities of rental property ownership. Although there are many components and steps, the extra work is always worth a highly qualified tenant. By following these tips and complying with fair housing laws, you’ll be in an excellent position as a new landlord when it comes to filling your units.