Good Credit Score, but High Debt-to-Income Ratio! Should I rent to them?

[Marc M.]

Hi Folks...I need some BP advice:

I am managing a rental property for a family member. I found a person who wants to rent the place (and thanks to BP forums, I used MySmartMove as many people recommended)....they have a 752 credit score, but are carrying a lot of debt, which includes a mortgage although their house is under contract and will close in a week or so. This person has a good, long-time job, but when I subtract their after-tax salary from their monthly debt payments (including the cost of renting the house I am advertising), it's in the red by $900. When I factor in the sale of their own house (assuming their mortgage payment will disappear), it's still in the red by $100. If they pay off some of their other debts with the proceeds of their house sale it might help out....there is currently $37K in equity in the house.

What do you think? How much should I scrutinize someone's financial picture. They've sent me pay stubs, banks statements, paid for their own credit and background check. I can't really call a previous landlord since they already own, but their credit score is solid...no history of late payments or anything. 

Looking forward to your responses.

Best,

Marc

[Account Closed]

To avoid discrimination you need to determine your required income policy before taking applications. For example, requiring that gross income be 3x the rent and then applying that to all applicants. You are not in a position to determine or analyze their DTI ratios v. their savings v. their potential proceeds from the sale of the house and how it affects their ability to make a housing payment. I wouldn't even go there.

That being said, If the rent is comparable to their previous housing payment (taking into consideration PITI), I'd be comfortable. Stable income and good payment history on housing is all I need. I don't need or want to analyze the total applicant debt picture.