[Bobby]

I’ve an applicant for a house that I’m renting. The applicant and the spouse seem to have enough income to make the rent payment but they also have a considerable amount of debt. They seem to be making on time payment on the debt they have. Looks like the income goes pretty much on the debt. They currently don’t pay a rent as they live their parents.  

My question is, is it okay to accept them based on their income or should I be worried about the the debt they have which seems to consume most of their current income? 

Do usually landlords just look at income or the applicant’s ability to pay rent?

Also, they have not submitted any statements that shows the source of income for deposit money but have verbally said they are okay with the deposit payment. Should I ask them to provide the source of income for deposit payment? 

Other than that they seem to be a lovely couple and I’ve verified their employment and everything checks out and I like them.

Thanks for any inputs!

[Jenny]

We usually get their latest paycheck stub and run a credit check. I would go with your gut instinct. Also see if there are other qualified candidates.

[Mike]

The very first thing that matters is their ability to pay rent!

Before you sign a lease and before you give up the keys, your applicant needs to demonstrate that they have the ability to pay the rent.

If they’ve substantiated $1,000 a month of income and their credit report says they have $990 of loan payments every month, then sooner or later you’re probably going to start getting late rent – and then finally no rent payment at all.

So yes. You need to know where the money is coming from, the amount of money that’s expected to come in, the risk that that money stops coming in, and your applicant’s history of making on time payments.

Also, check out: Do you find that your tenants resent you for being a have vs a have not?

[Betzandra]

Check debt to income ratio. I accept 50%.

[Lori]

If the debt payment would disqualify them from getting a mortgage, I would pass. I don’t remember what the mortgage company allows for excess debt but if it’s over one third of their income, it will probably be a problem.

Don’t forget, they are moving out of the parental home, which probably provided them with free food, hygiene supplies and more. They will have to buy their own going forward, and if they haven’t ever lived on their own, they will be forced to budget.

I would pass on them, especially if you have any other applications.

[Rick]

If you sourced the funds and that effort left you feeling similarly, something is not great about these people, then what do you do? I am not sure extra digging will get you towards feeling better about them.

I believe the reasons most small landlords use things like 2x or 3x rent in income, without really evaluating debt, are 1) they don’t have or want to have a complex application metric and 2) they are concerned anything they try to do on the complex side will either fail to accomplish any risk reduction and/or create potential for discriminatory accusations.

I think this comes down to gut feeling. You either use those or your don’t. Whatever you do, don’t sweat the outcome if different. It’s about how you felt and how you acted at the time of decision, not how it turned out.

[Author]

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