The COVID pandemic has changed many things in the rental industry. However, landlords must have comprehensive and fair rental screening policies that remain consistent. That said, many renters had their income interrupted or even faced eviction due to the pandemic. So, how should future landlords view these circumstances? The trouble is, without thorough screening, landlords could run the risk of higher eviction rates, non-payment, or property damage. Now, with the added challenges of longer vacancy times and difficulty finding qualified tenants – what can property owners do? Continue reading as we review the essential rental screening policies to help owners choose good tenants after COVID.
Why are Rental Screening Policies Necessary?
Besides a legal lease agreement, rental screening policies are the backbone of the rental industry. This vital process is crucial to protecting landlords against potentially troublesome tenants. However, screening requires an investment of time and money to do correctly. In a time when having an extended vacancy is so stressful, filling the unit with the first person who applies may seem like a good idea. That said, skipping this critical process will only cost more in the end. So, let’s review the top 3 reasons why every landlord needs tenant screening policies in place.
- Help Ensure Timely and Complete Payments – If past behavior predicts future behavior, then an applicant’s payment history is vital. After all, landlords rely on timely rental payments to pay their bills and make a profit.
- Protect the Property and the Community – Part of being a good landlord is also being a good community member. Therefore, property managers should screen to weed out applicants that threaten the neighborhood’s safety.
- Peace of Mind – While no process is foolproof, completing simple due diligence allows landlords to enjoy peace of mind that they are giving keys over to a qualified tenant.
Standard Rental Applicant Screening Criteria
- Employment and Income Verification – Applicants should be able to prove adequate income to afford the monthly rent plus other expenses. Typically, a verifiable income of three times the monthly rent is standard.
- Criminal History – Landlords check criminal history for at least the last seven years, looking for anything that may put themselves, the community, or the property at risk.
- Eviction and Rental History – A history of evictions or past due rent filings could signal trouble for property owners. However, post-COVID, it is essential to look at particular circumstances surrounding a recent eviction or any late payments. For example, they may have been due to a job loss and not irresponsible behavior.
- Credit Worthiness: Credit reports help verify someone’s overall financial health. So, warning signs include owing large sums to collections or a history of late payments.
Avoiding Discrimination Claims with Tenant Screening
For landlords, compliance with local and federal Fair Housing Laws is essential. The Federal Fair Housing Act helps ensure consistent housing practices and protects renters from discrimination. While federal law has certain “protected classes,” local laws may add to this list, and landlords must understand all applicable laws.
Under the Fair Housing Act, the seven protected classes include – race, color, religion, national origin, sex, disability, and familial status. However, local jurisdictions may also protect other tenants from discrimination based on – citizenship, age, veteran status, genetic makeup, sexual orientation, gender identity or expression, criminal history, and source of income. So, be sure to research local laws in your area and remember that Fair Housing guidelines also cover everything from discrimination and harassment to retaliatory behavior and exclusionary advertising.
With that in mind, the most surefire way to avoid any discrimination claims and operate a successful business is to treat every applicant or tenant the same. Thus, avoiding potential legal and crippling financial consequences of a Fair Housing dispute.
Creating Post-COVID Rental Screening Policies
Screening criteria are vital for landlords to make an informed decision when choosing a tenant. That said, screening after COVID means facing some unique questions and circumstances. While the goal is always to find the best fit for your rental property, it can be challenging. Let’s take a look at each step of the screening process below.
- Screening Tenants for Income and Employment Verification
- Evaluating Applicant Credit Reports
- Reviewing Rental History and Evictions
- Checking Background and Criminal History
Step 1: Screening Tenants for Income and Employment Verification
Income and employment verification are one of the most critical factors in the tenant screening process. However, the COVID pandemic caused many renters to lose or experience disrupted employment. Most often, standard qualifications look for a minimum income of three times the monthly rent. This ensures that a tenant can comfortably afford both the rent and other essential monthly bills. That said, there are several ways an applicant can prove their income to a landlord including –
- Employer Paystubs – Landlords should request to see documents from the most recent 2 or 3 pay periods.
- W2 – When paystubs are unavailable, an applicant’s most recent W-2 is a suitable substitute.
- 1099 or Schedule C – Sometimes, applicants may have non-traditional sources of income, such as tenants who are self-employed, freelance, or independent contractors. In this instance, tax documents can verify income.
- Account Statements – If all of the above is an issue for any reason, applicants can provide bank statements showing regular deposits or sufficient income from other sources to prove income qualification.
In addition to the verification options above, it is a good idea to call and verify current employment with an employer. This is an easy way to confirm both income and work status when paperwork is either unclear or unavailable.
Job stability is another critical factor for landlords to verify. However, the COVID pandemic affected many renters in numerous ways. So, while landlords should consider gaps in employment or “job-hopping” as a sign of potential risk, consider work history both before and during the pandemic to get a complete picture.
Can Landlords Discriminate Based on Source of Income?
Due to the pandemic, many individuals and families found themselves battling financial hardship. Unfortunately, many states do not allow landlords to discriminate based on a tenant’s income source. Therefore, if the tenant is receiving assistance from housing agencies, unemployment, or other sources.
For example, acceptable proof of income may come in the form of – pay stubs, tax returns, bank statements, letters from an employer, social security documents, disability insurance, pension, court-ordered payments, section 8 vouchers, or unemployment documentation.
So, property owners should verify income carefully and make sure they comply with all local, state, and federal fair housing guidelines.
Step 2: Evaluating Applicant Credit Reports
Income verification offers insight into a tenant’s ability to pay. That said, credit reports indicate a tenant’s willingness to pay. Therefore, evaluating creditworthiness is one of the essential tenant screening policies for landlords. However, the key is not to focus solely on the numerical credit score but more so on the overall credit profile.
Reviewing details about the source of someone’s debt, such as student loans or medical expenses, can be an explainable circumstance for tenants with an average score. On the other hand, a college student may be just starting to build their credit, affecting a landlord’s decision. Some of the key factors to look for when evaluating credit reports include –
- What is the Credit Score? – Many landlords choose to set a minimum score of 600 as part of their screening qualifications. While the score is not everything, it is a helpful indicator of financial viability.
- Are There Any Accounts in Collections? – Accounts in collections demonstrate that an applicant did not fulfill their financial obligations for an extended time. This may be pandemic-related, but it is essential to dig deeper. Any inability or unwillingness to pay bills is a red flag for landlords.
- Does the Applicant Have Outstanding Utility Bills? – If an applicant owes a balance to a utility provider, they may be unable to set up utility service at a new property.
Step 3: Reviewing Rental History and Evictions
Even after CDC moratoriums and continued rent relief efforts, many tenants still face imminent eviction. While COVID created an unprecedented set of circumstances, prior eviction history is a significant factor for tenant screening. According to a TransUnion study, tenants with an eviction history are three times more likely to be evicted again. So, tenants with prior evictions, poor payment history, or accounts in collections should be seen as high risk for landlords.
That said, verifying rental history requires getting in touch with former landlords. These individuals can offer a wealth of information if you ask the right questions. So, always take the time to call and speak to previous landlords before approving or denying a rental application.
Step 4: Checking Background and Criminal History
Landlords will want to conduct a criminal background check on prospective tenants to look out for themselves, the property, and the neighborhood. However, not every law enforcement encounter ends in a conviction – and this is an important distinction for property owners. For instance, an applicant who has not been convicted deserves consideration.
Additionally, the Fair Housing Act prohibits any blanket tenant screening policies that automatically deny all applicants with a criminal history. That said, the following list are examples of convictions to watch out for –
- Felony Convictions (within the past seven years)
- Domestic Violence
- Assault and Battery
- Serious Drug Charges (such as convictions for distribution)
- Sexual Assault
- Registered Sex Offenders
Effortless Screening with Bay Property Management Group
Finding a qualified, stable, and responsible tenant is the goal of every landlord. However, for landlords, managing all of the many tasks that go along with rental ownership plus complex screening is a challenge. In addition, time is of the essence when looking for a new tenant. After all, every day a property is vacant means that landlords are losing money.
Hiring an experienced property management firm is a great way to limit vacancy, ensure legal compliance, and protect your property from bad tenants. Thanks to our time-tested rental screening policies, Bay Property Management Group has a less than 1% eviction rate. In addition, we offer a worry-free 6 Month Tenant Guarantee so that if any tenant we place gets evicted within 6 months, we re-lease your home for free! So, if you are interested in maximizing profits and minimizing stress as a rental owner, give us a call today.