Income Requirements for Tenants: A Landlord's Guide to the 3x Rent Rule

An income requirement is the simplest part of tenant screening and the easiest to get wrong. This guide is for owners and managers setting one. The 3x rent calculator gives the figure for any rent, so you can state it plainly on a listing.

Pick a ratio and write it down

Three times the rent in gross monthly income is the default most landlords use, though tenants do not have to make 3x the rent everywhere. It limits rent to a third of the tenant’s pay before taxes.

Whatever you choose, put it in written screening criteria before you advertise. State these four things:

1. The ratio, such as 3 times the monthly rent.
2. Gross or net income.
3. Whether co-applicants’ incomes are combined.
4. What you accept when an applicant falls short: a co-signer, a larger deposit, or nothing.

Written criteria are what let you show later that every applicant met the same test.

Choosing between 2.5x, 3x and higher

The ratio is a trade between risk and vacancy.

A higher bar means tenants with more cushion and a smaller pool of applicants. In a market where rents have climbed faster than wages, 3x can leave a unit empty for weeks. A month of vacancy costs 8.3% of the year’s rent.

A lower bar fills the unit faster and leaves tenants with less margin. Many landlords who drop to 2.5x pair it with a stricter look at credit score and rental history. The 2.5x rent calculator shows what that requirement works out to in dollars.

Income is also a weak predictor on its own. An applicant at 2.8 times the rent with five years of on-time payments is often a better bet than one at 4 times with a recent eviction.

Verify the income

A requirement is only as good as the check behind it.

• Collect the last two or three pay stubs and read the gross figure.
• Convert pay periods correctly. A biweekly paycheck is multiplied by 26 and divided by 12.
• Call the employer using a number you looked up yourself.
• For self-employed applicants, use tax returns and bank statements.
• Count benefits, support payments and other lawful income that is documented.

Proof of income for an apartment lists the documents from the applicant’s side.

Apply it the same way to everyone

The federal Fair Housing Act (HUD’s overview) bars discrimination based on race, color, national origin, religion, sex, familial status and disability.

An income requirement is lawful under the act. Uneven use of one is not. Asking one applicant for 3x and another for 4x, waiving the rule for some people and not others, or counting one applicant’s overtime while ignoring another’s will all cause trouble if the pattern follows a protected characteristic.

Process applications in the order received, apply the written criteria, and keep a record of why each applicant was approved or declined.

Source of income and vouchers

Many states and cities add source of income to the list of protected characteristics. Where they do, you cannot refuse an applicant because their income comes from a housing voucher, Social Security or other assistance.

Some laws also dictate the math:

• California’s Government Code section 12955 makes it unlawful to use an income standard that is not based on the portion of rent the tenant pays. With a $1,500 rent and a tenant share of $400, a 3x test is run against $400.
• Washington’s RCW 59.18.255 requires a voucher or subsidy to be subtracted from the rent before an income threshold is applied.

Places that cap the ratio

Portland, Oregon limits the requirement itself. Under City Code 30.01.086, a landlord may require gross income of no more than 2.5 times the rent for units below a rent threshold tied to 80% of median family income, and no more than 2 times for units at or above it.

The same code says an applicant who misses the ratio may be asked for a guarantor or an additional deposit instead of being denied, and a friend or family guarantor cannot be required to earn more than 3 times the rent.

Local rules change, and other cities have their own. Check with your housing agency or a landlord-tenant attorney before publishing criteria.

When an applicant falls short

Decide your policy in advance and offer it to everyone in the same position. Common choices are a qualified co-signer, a larger deposit within your state’s cap, or a shorter lease.

The applicant’s view of these options is in how to rent without 3x income, and the 3x rent rule guide covers how the test is normally run.