Financial setbacks don’t have to take you out of the rental game, but it may require a bit more work on your part.
Falling into the type of financial hardship that leads to foreclosure or bankruptcy can be overwhelming, to say the least. If you factor in the additional pressure of needing to be approved for a rental, then the situation can get downright scary. But things don’t necessarily have to be so glum. By keeping the below advice in mind, you should be able to navigate your way into a new home soon and rent an apartment after bankruptcy or foreclosure.
1. Be prepared to explain your situation
Not every foreclosure or bankruptcy filing is the result of poor money management. If, for instance, a job loss or unexpected hospital visit sank your finances, you can explain that to a property manager or landlord. Be ready to show how you are better equipped to handle expenses now and why that financial hardship is behind you. This may mean gathering proof of income beyond what is normally required.
A frank, up-front conversation can also prevent you from wasting time and money on an application fee if the landlord won’t budge.
2. Offer a larger deposit if you can
The bigger the deposit you can offer upfront, the more assured the landlord will be that cash flow won’t be an issue going forward. Will Curtis, a Certified Property Manager and associate with NPL Group in San Antonio, Texas says, “In these situations, cash is king. While someone going through a foreclosure or bankruptcy will certainly have damaged credit, having cash and manageable expenses are going to help make up for it.”
3. Consider using a cosigner
A foreclosure or bankruptcy may be less off-putting if you have a cosigner able to offer an additional level of protection for the landlord. This is a big ask, so in addition to ensuring your cosigner has credit in good standing, make sure they feel comfortable with the transaction and know all the potential financial implications. After all, they would be on the hook should you find yourself unable to pay your rent.
4. Keep your debt-to-income ratio in check
According to Curtis, a good indicator of your ability to comfortably pay the rent each month is your credit score and debt-to-income ratio. “While there is not a standard debt to income ratio landlords look at, usually, something close to buying a home—35% or less—is going to be a good goal.”
Curbing credit card spending and paying down existing balances is one way to start lowering your debt-to-income ratio. You can calculate yours by adding all of your monthly debt payments and dividing that number by your monthly pre-tax income.
5. Consider a different location
It may be time to branch out and consider a wider variety of housing options. Consider looking outside the areas where rental demand is highest. Looking in a renter’s market with motivated property managers will give you an advantage.
6. Gather character references and letters of recommendation
Even if your credit score has taken a beating, there are other ways to prove you can be trusted to pay your rent each month. Gather character references and letters of recommendation from past landlords, roommates, or employers to help a potential landlord see past a foreclosure or bankruptcy filing.
7. Don’t freak out
While renting after a foreclosure or bankruptcy may mean jumping through a few extra hoops, it’s certainly not impossible. By selecting rentals within your current financial boundaries, bringing more cash to the table, and arming yourself with a good explanation, it could be (relatively) smooth sailing ahead.