Renting an apartment with a low credit score can be a nightmare, especially if your low credit score is due to missed mortgage payments.
Landlords do not understand how relentless mortgage lenders are with delinquent reporting and they don’t take the time to allow you to explain what happened.
Landlords don’t understand that if you’ve sold your distressed property, you are likely making a good decision. They don’t get that you have chosen to remove yourself from an unaffordable situation prior to letting the matter go to foreclosure.
Without any opportunity to explain, landlords take your rental application, run their credit check, and then issue a quick decision based almost solely on your credit score.
You can end up being forced to live somewhere you don’t want to live. Or, it can cause you to have to pay several months’ rent up front, which can be expensive and unmanageable.
Even with a credit score drop of 200 points, this client got approved
Let’s look at a recent case of mine.
I had a client that had been through the wringer.
He got divorced, his income was cut in half and his mortgage payments became unaffordable. His home was underwater and he knew that he could no longer afford to pay $2,500 per month for his mortgage. He needed to downsize.
He had been in default for five months prior to hiring me so he already had five months of delinquent reporting on his credit report. His credit score had dropped over 200 points.
While the short sale was a great decision for him in that it helped him sell his home for less than it was worth (and settle all remaining debt), the resulting impact on his credit report made renting an apartment challenging.
Landlords were telling him that he wasn’t responsible. They were telling him that they couldn’t trust him to make his rental payments on time. Even though his income was about $4,000 per month and the rent was only $1,500, the landlord didn’t care and felt he was too much of a risk to take on because of his low credit score.
The answer was a Letter of Explanation
In particular, a letter of explanation, from an attorney. Once the landlord received the letter, he reconsidered the application.
Submitting a letter of explanation did the following things:
- Explained how my client chose to be responsible and proactive by selling the home in order to avoid foreclosure
- Legitimized my client’s desire to reduce his expenses to create affordability in his life
- Detailed how damaging the mortgage lender’s delinquent reporting was so the landlord was able to understand why the score was so low
- Provided an opportunity for the landlord to ask me questions about my client’s character so they could get a better sense of who the client was as a person
Following the landlord’s review of the letter, my client was offered the apartment with normal terms and a standard lease agreement.
An attorney can help you navigate the rental process
An attorney can level the power imbalance between you and your potential landlord. You can get professional insights that may change the way your landlord views a low credit store.
The best thing to do if you are applying for a rental following a sale of a distressed property is to hire an attorney to draft a letter to supplement your rental application.
If you can’t find an attorney to help you, use the template below to draft your letter of explanation:
Re: _____(name) Rental Application
To Whom It May Concern:
Please include this letter with my rental application. In the event you pull my credit report as part of the verification process, my credit score will be low at this time. Please understand that this low credit score is caused by my prior default on my mortgage.
As you can imagine, once one defaults on a mortgage – the creditor has the ability to relentlessly report delinquent payments every month. As a result, my credit score is damaged. It will take some time to repair but I am actively working on repairing my credit at this time.
Despite my default, I chose to responsibly complete a sale of my home in order to proactively resolve the issue. I participated in a debt settlement forgiveness program, fully completed the entire application process, and participated in a lengthy negotiation in order to avoid foreclosure. I took advantage of the bank’s loss mitigation procedures so that the situation would not worsen.
The credit report does not reflect the proactive steps I took. I confronted a tough situation, avoided foreclosure, and settled a large amount of debt with the bank. I am now looking to rent because a rental payment is affordable for me and I don’t wish to end up in default again.
In about 60-days, my delinquent mortgage account will show as settled and I’m excited to repair my credit.
The hope in providing this letter to you is that you will look at my current income and will take my responsible decision making into account when determining whether renting to me is a good decision. Many people in my situation let a foreclosure situation spiral out of control.
Please let me know if I can provide any additional documentation to prove that I sold my home prior to foreclosure if that would help the approval process.
Final steps to get your rental application approved
- Attach the letter on the front of your rental application so it gets noticed
- Tell your landlord verbally and in an email that you’ve included an important letter that will proactively explain the low credit score they may see
- Offer to provide copies your closing documents (from the sale of your home) showing that you sold the home in order to verify the information in the letter
- Offer to give additional / extra copies of your pay stubs and bank statements to supplement the letter in order to prove that you are financially capable of making your rental payments
If you’ve done the hard work to get out of an unaffordable situation, you should be rewarded, not punished. Follow the step above, or reach out to me for help.
If you need help with renting following a distressed sale, call me at 425-654-1674.