Everyone from credit card companies to landlords is now asking for proof of income from consumers and applicants, but why is this piece of information so important? What is proof of income, and how can you legally collect this personal information from prospective tenants?
When landlords request proof of income, it can feel like an invasion of privacy, but that’s not accurate. Proof of income can help you ensure that your business will be secure and that the rental applicant will be a good fit. Without this verification, there’s no way to be sure either of those things is true.
Today’s guide will go into detail about proof of income, why it is important, and how you can collect and verify this data. By the end, you’ll be ready to improve your tenant screening process to be top tier.
Table Of Contents: What Is Considered Proof Of Income?
Finding out what a potential tenant earns might seem too personal at first, but this information is essential to identifying the right tenant for your property. It doesn’t benefit anyone to rent to someone who cannot afford it. Learn about proof of income through today’s guide:
- What Is Proof Of Income?
- Why Is Proof Of Income Important For Landlords?
- What Is Considered Proof Of Income?
- How To Verify Proof Of Income
- FAQs: What Is Proof Of Income?
- Applicant Income: An Essential Piece Of Information
Proof of income is documentation that shows an individual’s earnings, usually during a set period of time. Most of these documents will show earnings for the past year, but the exact period can vary depending on what the proof of income is being used for. It shows that an individual makes the amount of money that they say they make. Verify your tenant’s income by using RentPrep’s latest income verification tool.
Additionally, proof of income is often used to determine if someone can pay for a larger-than-everyday purchase, such as rent, a loan, a car, or a house.
Depending on an individual’s situation, the exact type of documentation used as proof of income may vary. The critical point of any documentation is to show that an applicant has a reliable source of income and that they can reasonably be expected to have access to that income in the foreseeable future.
While knowing how to show proof of income is essential for renters as it’s a standard practice in the rental industry, this isn’t the only industry where this documentation is important.
Credit card companies, insurers, banks, and utility providers are just a few other organizations and businesses that may want access to this type of information. Anyone who may help finance a large purchase is going to want to see proof that an individual can and will be able to make payments over time, until their debt is paid off.
As a landlord, one of your number one priorities needs to be to learn how to avoid high-risk tenants. Your business cannot succeed if you are consistently renting to tenants who cannot pay, who leave your property in terrible condition, or need to be evicted.
One of the main things that needs to be addressed is whether or not a tenant will be able to afford rent. The best way to check out the financial responsibility of an applicant is to do a thorough tenant screening. Part of the process involves checking proof of income to ensure a tenant makes enough money to afford rent and other necessities.
It is legal to deny tenants who don’t meet your rental unit’s rent-to-income criteria. Most landlords want to choose tenants who make at least three times the monthly rent as their monthly income.
However, you won’t know if a tenant meets this threshold if you don’t know their income. You are permitted to ask for evidence of an applicant’s income to ensure they have the financial ability to pay rent. If this evidence isn’t provided or is not a match, their application may be denied.
Prospective tenants must show they have income and that their income is consistent. Landlords must learn this information about all tenant applicants so they can choose the tenants who are most likely to pay in full and on time.
What qualifies as proof of income when submitting a rental application?
There isn’t a precise answer to this question as the answer differs by landlord. However, most experienced landlords collect similar documentation that includes the following essential information:
- Applicant’s full name
- Identifying information to prove it is real (such as SSN)
- Income amount
- Time period
- Date issued
- Employer name (if applicable)
Documents that include this information, such as pay stubs, qualify as a great option for proof of income. Landlords will be able to quickly review these documents to confirm that a tenant can afford rent and that they were honest when submitting their rental application.
It’s not hard to learn how to show proof of income, and all applicants should be willing to share this information. Anyone with a full-time job can easily prove their income with a pay stub or W2, while self-employed people can use tax documents, invoices, or bank statements.
The most common types of documentation used to prove income by rental applicants include:
- Federal tax returns – This legal document is a great option to show what has been made over the last year, and a legitimate federal agency issues it.
- 1099 forms – These forms are great for freelance or contract employees that do not have a W2 or pay stubs that can be provided as proof of income.
- Bank statements – Statements that show incoming payments for sales, clients, and work are great for all types of employment. Small business owners should have a separate bank account to simplify this process.
- Profit and loss statements – Another option for self-employed business owners is a profit–loss statement, as these are very simple to read and understand.
- Employer letters – Some employers will be able to issue a letter that states an individual’s job, salary, and date(s) of employment with the applicant’s permission.
- Pay stubs – Pay stubs show the pay period and frequency of income; this is the best way to get a picture of an applicant’s in-the-moment income.
- W-2 form –: W-2s show wages and taxes for an individual and a copy can be obtained from the applicant’s employer.
- Social Security income – Individuals receiving income through the SSA can log in online to get a verification letter issued to show their income at any time.
- Other documents – Court alimony letters, retirement pensions, and other documents can also be accepted as proof of income, given the individual’s particular situation.
Landlords who know what is considered proof of income will be able to quickly request this type of documentation from a rental applicant. Let tenants applying know they will be expected to give you proof of income.
Additionally, you will want potential tenants to sign off on a background check, including employment and income verification services. Once you have their permission, you will be able to verify any and all documentation that you are given while also doing a complete background check. These are essential tenant screening processes.
What do you do with the proof of income documents once you receive them?
Verifying income is vital, as some tenants will lie about their information in order to be approved for an apartment. While they may be able to struggle and make ends meet without you knowing the difference, it is still wrong for them to falsify this information as it creates unnecessary risk for your business. The only way to determine if an applicant lied or not is to verify their income.
It’s essential to confirm that they are actually receiving that income. This can be done in several ways. You’ll want to do the following:
- Call the employer to make sure they are still employed.
- Cross-reference any bank statements with pay stubs to ensure there are no discrepancies.
- Verify that all documents submitted are real and current.
- Ask to verify Social Security income with a letter if applicable.
Prospective tenants will need to understand that you want to be sure they can afford rent and that income is part of the overall equation when choosing the right tenant.
Is obtaining proof of income proving to be a tedious process for your business? Whether running a one-person show or a more extensive operation, income verification is often a sticky part of the tenant screening.
That’s why we’re proud to offer our Income Verification Service here at RentPrep. We have a highly refined process that allows us to confirm income so that you can make your decision more quickly than ever before. Additionally, we have a specialized high-volume screening service for enterprise clients, including income verification. if that is more in line with what you need. At RentPrep, we’re happy to help landlords with any size business succeed.
It’s important to keep in mind what exactly counts as income for a tenant. Here are just a few common questions answered below.
Many documents can be used to show proof of income, but most landlords prefer to request documents that are difficult to fake, such as work pay stubs, official tax documents, and bank statements.
If a landlord doesn’t care which type of document is used, it’s key that all collected proof of income includes a pay date, employee name, amount of pay, and company verification. Having all of this information will show that the document is real and accurate, and it will also give the landlord something to verify when they check proof of income.
Many landlords will accept bank statements as proof of income as long as they show at least two paychecks being directly deposited into the account. In addition to a bank statement, landlords may want to receive an employment verification letter.
This will show them that the position is not one-off or seasonal employment but is instead a consistent job that will continue to pay. This reassures landlords that the tenant will be able to afford rent in the coming months, not just the current one.
Depending on the type of work they do, self-employed tenant applicants can be asked to show various document types. One of the most straightforward documents for them to use is their tax return or their quarterly tax payments. This indicates that they are making enough to make those payments, which can be used to verify their income.
Many individuals who own their own business or are self-employed will also have invoices, bank statements, or detailed profit–loss sheets. These documents can be shared as a type of income proof as they show information about what kind of money the applicant is making at this time.
All experienced landlords will do an income verification check. Finding out if the income information given by a tenant is accurate ensures that the tenant is honest, and it also helps the landlord decide if the applicant can afford the rental or not.
Income verification is an integral part of tenant screening for many landlords. Landlords want to be incredibly thorough when tenant screening to reduce their risk as much as possible. Checking income is just another way to lower the risk of renting to unknown individuals.
No matter how you legally collect proof of income from rental applicants, remember that it is critical information. Income helps you get a better picture of a potential tenant, and this can provide essential info for tenant screening:
- Do they make enough money to afford monthly rent?
- Were they honest about their income?
- Do they have consistent employment?
These questions are key when determining whether or not you should rent to a potential tenant. Screening should always involve these questions. If a tenant’s income is too low, you would be doing both them and yourself a disservice if you were to approve them.
However, the only way to know that is to have proof of income documents in hand. Make sure to include this as part of your screening process.