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Landlords usually expect new tenants to have enough money and a good repayment track record before trusting them with their property. So when you’re wondering how to rent a house, know that your income, credit and previous rental and employment history are crucial.
- Your future landlord wants to know that your income is stable and that it’s likely to continue in the foreseeable future
- Your credit report and score tell property owners how well you have managed your payments in the past
- Great references from employers, community leaders and previous landlords can give you an edge when competing for a desirable rental
If your past is less-than-perfect, or you’re new to using credit and have no previous rental history, you may be able to rent by putting more money down up front, or by finding a guarantor — someone with good credit and a healthy income to co-sign your lease.
Jumping hurdles: requirements to rent a home
These job and income thresholds don’t exist because landlords are snobs who favor particular occupations. Few go around at parties boasting about “my tenant, the doctor” or “my tenant, the lawyer.” It’s because they need to be sure tenants can afford to pay rent consistently. And a history of steady employment and income provides them with some valuable reassurance on that.
This puts certain groups at a disadvantage, including some self-employed people, those who live on welfare and individuals with large and recent gaps in their résumés. Even retired folk sometimes have issues. But don’t despair if you’re in one of those groups. Read on to discover some workarounds.
Although landlords are hedged in by a mountain of regulation, nobody but they dictate their job and income requirements to rent a home. Each can set her own thresholds — or have none at all.
Who does and doesn’t impose thresholds?
The ones who are least likely to have pre-set standards are probably small landlords. Those are, perhaps, ones who own between one and 20 rental homes. They tend to be very hands-on with their businesses and often prefer to view tenancy applications in the round. Some favor their instincts over external information and may even not bother with credit and background checks.
Most large, corporate landlords (they can own tens of thousands of homes) and rental agencies use strict criteria when selecting tenants. They may even leave the decisionmaking to their computer systems. With them, you may be able to appeal a decision. But you’ll need to make an excellent case for why you should be an exception.
The most common income threshold
We know there are no set thresholds. But there is one that many landlords use. And that is that your total housing costs should not exceed 30 percent (sometimes 33 percent) of your income after tax.
What are “housing costs?” Well, rent is usually the biggest component. However, they also include any utilities that you (rather than your landlord) have to pay, along with any “extras,” such as parking and storage.
Problems with the 30-percent rule
The 30-percent threshold dates back to the United States National Housing Act of 1937. And it was never intended to be more than a rule of thumb.
Think of it as being a bit like body mass index (BMI) rules. They’re not one-size-fits-all, either. That’s why supremely fit and heavily muscled athletes can find themselves classified as obese.
So, if you have a simple, inexpensive lifestyle, few debts and plenty of assets, you might easily afford to pay 40 percent of your after-tax income on housing costs. But, conversely, someone with huge credit card balances may struggle to find 20 percent. If you fall foul of the 30-percent rule, try sitting down with the landlord and proving why you’re the financial equivalent of a supremely fit and heavily muscled athlete.
We’ve already established that landlords are more interested in the size and continuity of your income than your occupation. Of course, if you’re moving from a highly paid job to one with a small salary, that will be relevant.
But, generally, you’ll benefit most by having a consistent employment record. Obviously, it must be one that delivers an income that makes the rent on the home you want to buy affordable.
For most, that’s easy to prove. You have documentary evidence in the form of pay stubs, W2s and so on. But what if you’re in one of those groups where that documentation isn’t available?
If you’re a reasonably successful self-employed person, there’s a good chance you’ll meet a landlord’s requirements to rent a home. But you’ll have to prove it in different ways from an employee.
Pull together documents that show your recent earnings. They may include bank statements for the last few months and tax returns going back as long as three years. You may be able to reassure landlords you have a realistic expectation your income will continue by showing them continuing contracts with customers or clients. If all those make you a borderline case, you might push the final decision your way by showing you have significant savings.
Again, this is a question of providing different documentation from that expected of a current employee. You can prove your income by providing recent copies of statements for your:
- Bank accounts
- Savings accounts
- Other pensions
- Social security entitlements
You might also benefit from getting a letter from your bank, accountant or any trust of which you’re a beneficiary. It should confirm that, in the signatory’s opinion, you’re good for the rent.
There are a couple of workarounds that can often change the refusal of a lease into an approval. However, they’re not available to all prospective tenants.
- Find a guarantor — Get someone with good credit and a healthy income to co-sign your lease and your troubles may be over. But recognize how big an ask that is: your guarantor will be liable for your rent if you can’t pay it
- Put more down — If you’re cash-rich, you can frequently overcome a landlord’s doubts by offering to pay a much bigger deposit than the standard one, perhaps into an escrow account. Just make sure your money’s legally protected
And, of course, you can seek out landlords who are happy to take on square-peg tenants. Most big landlords and rental agencies offer only round holes when it comes to setting their requirements to rent a home. But many smaller landlords offer holes of many shapes and sizes. And you might fit right in.