Tenant screening basics includes an overview of valuable tenant screening reports such as credit checks, eviction history, criminal background checks, and income verification. Whether you’re new to property management or refining your approach, you’ll find tips that will improve your tenant screening process and ensure successful rental experiences.
Discover the essential steps to effective tenant screening in this video with Kaycee Miller from Rentec Direct property management software. Kaycee breaks down the basics of tenant screening to help you find qualified tenants who pay rent on time, follow property rules, and maintain your property.
Learn about key reports like credit checks, eviction history, criminal background checks, and income verification, and how they help you make objective, compliant decisions. Kaycee also highlights the importance of adhering to federal laws, such as the Fair Housing Act and Fair Credit Reporting Act, to ensure a fair and legal screening process.
Tenant Screening Basics: How to Find Great Tenants – Watch the Video
Tenant Screening Basics – Video Transcript
What is the most important part of being a landlord or a property manager?
Is it maintaining a property?
Is it finding a rental house?
Or is it making sure you have great tenants that pay their rent on time, follow property rules, and ensure the safety and maintenance of the property?
Now, what is the best way to find these great tenants that I’m just daydreaming about? Well, it really comes down to your tenant screening processes and ensuring that you have procedures and policies in place that are compliant with federal rules and regulations. And also help you determine whether or not a rental applicant is going to be qualified to follow your rules, maintain the property, and pay their rent on time.
My name is Kaycee Miller. I work for Rentec Direct property management software. I’m also a landlord, a real estate investor, and I’ve been in the industry for over a decade as a real estate writer. Today, I want to share the basics of tenant screening.
What is Tenant Screening?
Tenant screening is the process of reviewing rental applicant information in order to determine if someone is going to be qualified to rent in your rental property and sign a lease for you to enter into a housing agreement.
Federal Tenant Screening Laws
Tenant screening is one area where it is so important that you really understand your obligations as a housing provider in the United States under federal laws. A couple of the most important federal laws that you will understand and know as a landlord and a property manager are the Federal Fair Housing Laws and the Fair Credit Reporting Act.
Both of these laws play a big role in your tenant screening process and policies and help you determine how to make a decision or review the reports that come into play when it comes to tenant screening.
The Tenant Screening Process
So when we think about tenant screening, that is the process from taking a rental applicant and having them give you information about themselves on your rental application and then reviewing that rental application information in order to determine if they’re going to be a qualified renter.
It is very important that you are making objective decisions in order to determine whether or not a rental applicant is a qualified applicant and whether or not you will approved them to be a tenant at your property.
Objective vs. Subjective Decisions
Objective decisions are things that are able to be verifiable on the rental application. For example:
Can you verify that this applicant has a history of paying rent on time?
Can you verify that they have a source of income that will help them cover their rent obligation to you?
Can you verify whether they have a history of following rules or following laws?
With the right reports and tenant screening process, you can verify all this information in the form of background checks and reviewing consumer reports.
Key Tenant Screening Reports
When it comes to tenant screening, there are a few reports that landlords use to make an informed housing decision. This is where the Federal Credit Reporting Act really comes into play because you’re going to be reviewing a consumer report which is protected under federal regulations.
Top 4 Tenant Screening Reports for Landlords
- Tenant Credit Report
- Tenant Criminal Background Report
- Tenant Eviction History Report
- Tenant Income Verification Report
I like to review a credit report on rental applicants. I’ll also do a criminal background check and an eviction history check.
And a new tenant screening process that we are recommending as well is an income verification report where you can essentially verify sources of income from your rental applicant to ensure that they’re going to be able to cover the financial responsibility of the rent amount that you are charging for your rental property.
How Screening Reports Help
When we think about what each of these tenant screening reports are, we’re also thinking about how that information helps you determine whether or not someone will be qualified to live at your property.
When it comes to being a good tenant, I like to think about whether someone can follow the rules? Can someone maintain a property and can someone afford to pay the rent? And do they have a history of paying rent on time?
Credit Report Details
So when it comes to a tenant credit check, I can see what their debt-to-income ratio might be and if they have any other major financial obligations.
Also on those credit reports you can see the debt that they have and their history of payments. A rental applicant’s debit gives me some idea of whether or not they will be able to afford their rent payment, beyond having enough income.
For example: Someone might make $5,000 a month and rent is only a thousand dollars a month, but if they have different debt and payments that are amounting up to more than $5,000 a month, can they really afford the rent that I’m requesting for my property?
Beyond the Credit Score for Tenant Screening
While a credit score gives you an idea of their financial responsibility, it’s really the details within the report that reveal more information that is valuable for making a housing decision.
Eviction History Report
An eviction history report will show you any court-ordered eviction filings that have been processed in a specific area for your rental applicant. Someone might say they have been evicted but it might not show up on their eviction history report if there wasn’t an actual court order.
If someone got a cure-or-quit notice requesting that they move out of a property they might think they are getting “evicted”, but a cure-or-quit notice is very different than actually having a court record of an eviction that would show up on an eviction report.
Criminal Background Report
When reviewing a criminal background report, you can only use dangerous convicted crimes as a reason to deny someone rental housing and not arrest records. And often, you can only consider convictions that happened within a certain timeframe.
So again, understanding what your, what the local, state and federal laws are in terms of how you can make a tenant screening decision is really important. But when I’m looking at a criminal background report, if I see that an applicant has been convicted of a dangerous crime recently, that may be a decision to not qualify them to live in one of my rental properties.
Income Verification Report
One of my new favorite reports is called an income verification report. This is an option for a tenant who might not have verifiable income in, in the form of regular pay stubs. Maybe they work in the service industry or they do contract work, so they’re not getting routine paychecks every single week that are really easy to prove, but they’re getting lump sums deposited into their account.
An income verification report can actually look at someone’s bank information and see, for example, every month they get these deposits coming into their account from maybe different clients that they’re representing. So that’s a really great way to help a tenant get into a property when they might not have a traditional form of regular pay that could cover rent, but you’re still able to prove they are financially qualified through this type of tenant screening report.
The Importance of Objectivity
One of the biggest things with tenant screening is that all these decisions need to be objective. You cannot make subjective decisions in rental housing, especially when it comes to tenant screening.
A subjective decision would mean denying someone rental housing based on a feeling or deciding you just don’t like them or they seem like they might not follow rental housing laws. Those are all subjective and absolutely illegal when it comes to rental housing.
I advise that you make tenant screening criteria that specifically defines legal reasons why you would qualify or not qualify an applicant, based on verifiable information found in a tenant screening background check process. By using objective, verifiable data in your tenant screening reports, you will be able to avoid discrimination and adhere to federal fair housing laws.
Final Notes on Tenant Screening
There are lots of things involved in tenant screening and more topics we can cover. Keep an eye out for more content and coverage on tenant screening, including:
- Are you using a tenant initiated tenant screening service or are you ordering reports yourself?
- The different types of tenant screening reports, we went over a little bit of them, but you can get even more micro on the types of reports that you can get into and the different information that you can gather from those tenant screening reports.
- What to specifically look for in a credit report and what’s the difference between a tenant credit report overview versus a full tenant credit report.
- Checking references and how that can be used in your tenant screening process.
- Considering what might be grounds for disqualifying an applicant from a rental property.
- How to notify a tenant when you have denied them rental housing.
Once again, my name is Kaycee Miller, I work with Rentec Direct property management software. You can find more tips about tenant screening and property management and being a landlord on the Rentec Direct Blog.
I look forward to sharing more information with you about how to be a great landlord, how to be a great tenant, and how to be an awesome property manager. Both on this platform and on the Rentec Direct Blog. Come and visit us there.
