How to apply for a rental home: A step-by-step process

In today's market, applying for a rental home isn’t a simple process.

Many landlords use property management software tools to screen and evaluate your application based on residency history, employment information, income details, credit score and more.

But before you submit your application, think about your monthly budget, income, hidden costs and how you can improve your financial profile. Then, gather the appropriate documentation.

To establish a budget, take your annual monthly income and multiply it by 30% or 0.30. Then, take that value and divide it by 12 to determine how much you should spend per month on rent and utilities. The remaining 70% of your income should be enough to cover your other essentials and build up your savings.

"Consider how rent interacts with recurring obligations like car payments, groceries, healthcare, loan repayments, retirement contributions and savings goals," said Thomas Ravert, a certified financial planner at Pathway Capital Corp. in Nyack, New York. You should also account for the cost of utilities — such as gas, electricity, water, internet or trash — early on.

But don't be too rigid. The 30% rule isn't a one-size-fits-all strategy.

"If you have student loans, childcare or significant debt payments, you may need to spend less on rent," Ravert said. "On the other hand, if your other obligations are minimal, you might afford to go higher without creating financial stress."

Renter's insurance typically costs between $10 and $25 per month. And don't forget about expenses such as parking, storage, pets and homeowner association-style community charges, Ravert said. Other costs can include moving expenses, rent increases or minor repairs that your landlord doesn't cover.

You can employ two methods when creating a budget that accounts for irregular income. "If your income fluctuates, base your rental budget on your lowest reliable monthly earnings, not your best months," Ravert said. "Another method is to average your past year’s income and cap rent at 25 to 28% of that number." Then, you would divide that number by 12 to establish a monthly budget.

Landlords or property managers often perform a hard credit check to determine your financial eligibility. Use one of the three primary reporting agencies — TransUnion, Experian, Equifax — to determine what’s affecting your credit score. Are there outstanding student loan payments in your report? Or maybe a medical bill you haven’t paid? If so, paying those off will boost your chances of getting approved. You can tackle your debt by using one of these two methods:

• Debt snowball: With this method, you pay off your lowest debt first before tackling bigger expenses. The debt snowball method is great if you want to see progress fast. 
  
• Debt avalanche: High-interest debt comes first, which lets you save more money over time. Once your high-interest debt is gone, it’ll be easier to knock out your remaining debt.  

Remember, it takes about one month for your credit score to change, so factor that into your rental application timeline.

Many landlords use property management software tools to manage the rental application workflow, including the initial inquiry, application and lease signature. When you first access the application, you’ll typically see the unit’s logistical information, including details such as room count, square footage and a detailed floor plan.

“The applicant would see what unit is available, when it is available, the lease term and the rent price,” said Brian Zrimsek, industry principal at MRI Software, a property management software company based in Cleveland, Ohio. Submitting basic information and documentation is the next step, Zrimsek added.

Gather and submit the following information:

• Your name, email address, phone number and date of birth 
  
• A valid driver’s license 
  
• Contact information for any co-applicants or guarantors 
  
• Information on your pets, if you have any 
  
• A list of your past residences 
  
• Rental or personal references 

Alongside that, submit the following documentation to verify your employment and income:

• Offer letters from current and past employers 
  
• An employer-provided W-2 form  
  
• A 1099 form for self-employed individuals 
  
• Pay stubs 
  
• Invoices and bank statements, if you’re self-employed 

Landlords typically charge up to $50 to process your rental application. Once you submit your application, your landlord or property manager will generally conduct a hard credit check, review your criminal background and confirm the details on your ID.

Application processing times may vary depending on the identity of your landlord. But it generally takes between a few days and a week to process a rental application. Sometimes, your landlord may reach out to request additional information or documents while processing your application. For example, if you submit a 1099 miscellaneous income form, the landlord or property manager may request bank statements and pay stubs to gain a better understanding of your income.

Signing your lease is the final step in the rental application process. Here, you may be required to pay a security deposit, which financially protects your landlord if you damage the property. Alternatively, your landlord may deduct your security deposit from your first monthly rental payment.

Before you sign, check and double-check the details of your lease, including:

• Your name and basic information 
  
• The monthly rent amount, due date and acceptable payment methods 
  
• Utility costs 
  
• Late payment policy and associated fees 
  
• Rules and regulations 
  
• Maintenance responsibilities 
  
• Early termination policy 

Don't be afraid to ask for clarification.

Single-family homes, townhouses and duplexes are generally more expensive than apartments or condos, as they offer more space and better privacy. With single-family homes and duplexes, maintenance costs tend to be higher than what you'd pay with an apartment or condo. Why? You have access to additional spaces, such as a backyard, garage, attic and other areas that require upkeep. Your landlord often will cover most of these expenditures, but you should still be prepared in case you have to pay for something on your own.

For most renters, saving for a down payment while renting is an excellent way to achieve growth in the real estate market. "Treat rent as a fixed cost, and automate your savings toward a down payment," said Nathan Sebesta, master certified financial planner for Access Wealth Strategies, which is based in Artesia, New Mexico. "Most buyers should plan to save around 10 to 20 percent of the home’s value, plus a few percent for closing costs and moving expenses. Set the goal and get to work! Start by paying off high-interest debt, improving your credit and reducing monthly expenses to create more room to save."