You may or may not have had a lender help push through a loan approval based upon other factors besides the requisite income, asset and debt to income ratio. Most conventional lenders are charged with making sure an application conforms to standard guidelines but also has some flexibility as it relatescompensating factors for renters to “stretching the guidelines” so to speak. When a lender is teetering on a loan approval it looks for other facets of the application that could push the loan to an approval.

Such facets are often referred to as “compensating factors” and can justify an approval that might not otherwise have made it through. Someone with relatively high debt ratios could receive an approval for instance if there are substantial liquid assets in the bank or a history of stable employment and consistent earnings.

If you’re a landlord and you have someone you’re not quite sure about, will compensating factors help you make a decision? Take for example someone that has recently declared bankruptcy and the credit scores are abysmal. Yet the potential tenant had to quit work due to an extended illness and is now back and starting a new job. Prior to the illness, the individual had worked for the same company for eight straight years and promoted twice. Is that a candidate for a tenant, in spite of the recent credit problems?

Let’s look at one more example. You do what banks do and make sure the tenant’s prospective income is three times the rent. But someone with an excellent credit history and credit scores approaching 800 has debt ratios at 45 but has shown the ability to pay higher housing payments in the past and still keep a solid credit profile. Is that someone you can rent to?

In either instance there are circumstances that can justify signing a lease agreement as there are compensating factors that can offset other slight negatives. If you’re in an area with very low vacancy rates and you can pick and choose your tenants you may not need to consider someone needing compensating factors to qualify. But if you’re not in such an environment, be flexible. Take other factors into consideration and listen to the entire story.