Does anyone analyze tenant debt from the credit report?

CR shows T1 owes 15,000 and T2 owes 11,000

they net 40,000 a year

debt ratio is 70%

How much or what percentage level would concern you?

Like many of you I am seeing marginal applicants and I am trying to decide if I should vote ya or nay.

Maybe some of you have a more straight forward analysis of tenant applications.

With all the debt, they certainly aren't going to leave and buy a house.

That level would be a no-Go for me. They're living beyond their means and will continue to slide further into debt.

I don't have any credit cards, but even if I did there's no way I'd have 70% of my annual income racked up on revolving accounts. I don't know what the minimum payments are on those, but my guess is somewhere around $300 - $400 per month.

My rule of thump is 25 % maximum debt to gross income.

I view this on a monthly basis so it would depend on the type of debt they had.

I want them paying about 25% of there income to me for housing, but I am in a low cost area.

You are telling us what the family nets, so I would estimate the family gross income at about $48,000 which is $4,000/month. If I am expecting them to pay $1,000 monthly, the total debt load including housing shouldn't be any higher than 43% and that is with very strong credit. I prefer it to be 38%.

So if these two folks have car loans totaling $520 /month with alright credit or $720 with strong credit, I could accept them. The problem, two car payments are normally well over $520/month. Also there is those credit cards get tossed into the mix.

I do this math though, in front of these applicants so they can see where we are looking out for them with the end game being them getting qualified for a home purchase. This is important, if you show a qualified applicant two places....1) that is a class C that is $800 that they can buy or 2) a class B that is $1,000 that they will never own,......the responsibility lays with the customer.

If you do the correct selling, you can explain how homes are stepping stone. These customers tend to stay with me for many years. If you don't sell them on the right place, the people will be with you for a few years in a class B.

So much depends on the type of applicant.

Applicants with disposable income can exercise choice when it comes to management of their finances. You don't have to be worth a fortune in order to manage to have investments (stocks, cars, property...) and the standards for applicants with disposable income need to be different from those without.

I look at the problem in more generality than the simple rules-of-thumb.

I consider if they have enough money to support their housing choice, plus other matters along the way. To do this, I consider income, potential expenses, earning capacity including (and especially) education, long or at least medium-term financial history, and overall professionality. Interview plus credit report (and verification of application) are enough, I have found.

I have had tenants who can easily afford the rent, but "forget" to pay on time, and I have had tenants who have only very marginal income, but wouldn't dream of defaulting on rent. So the best guide is "character", hard to define until you get experienced, but once experienced, the best guide.

Bonanza,

I am looking for cash flow. Do they have enough income and stability to pay the rent? Have they been paying their rent?

That debt could be a small loan on a car, medical bills, divorce atty bills, student loan. This amount of debt is below the national average.

Student loans put MANY young people in this category.

I am only interested in the monthly payments they make.

We DO consider those.