Proof of income is often required by experienced landlords; although it may feel like an invasion of privacy, requesting proof of income is an essential step in the application process that can help you decide whether a potential tenant is a good fit for your property. Here’s a look at which documents are considered proof of income, why it’s so important, and how you can verify it. Please note that this is not intended as legal advice, but for information only. Laws may vary depending on your location.
What is Proof of Income?
Proof of income is any document that shows an individual’s earnings; this is generally for a specified period of time (such as earnings for the past year) however the timeframe can vary depending on the type of document used. Proof of income is used to provide proof that a prospective tenant makes the amount of money they claim they make. In the case of credit card companies, it can also be used to figure out whether an individual will be able to pay for large purchases, like a home, a car, or a personal loan. Depending on the situation, the type of documents used to provide proof of income can vary.
Proof of income is an important step in the tenant screening process because it can help you avoid high-risk tenants who won’t be able to pay their rent. In general, it’s best to select tenants who make at least three times the monthly rent rate per month; this ensures that they’re able to pay their rent comfortably, as well as other necessities. However, without proof of income, you have no way of knowing whether a potential tenant makes enough money to cover the monthly rent.
As a landlord, you have the right to request evidence of a rental applicant’s income; you can also legally deny applicants who don’t meet your rent-to-income criteria.
Which Documents Can Be Used for Proof of Income?
Documents that can be used as proof of income include:
- Pays stubs
- W2 or 1099 forms
- Bank statements
- Federal tax returns
- Profit and loss statements
- Employer letters that state the applicant’s job, salary, and date of employment
- Social security income
- Other documents, such as court alimony letters or retirement pension statements
You should be able to quickly review these documents to determine whether an applicant is being honest about their income and will be able to afford rent.
Regardless of the type of documentation you require, make sure it includes the following information:
- The applicant’s full name
- Identifying information, like their social security number
- Their income amount for a specified time period
- The date the document was issued
- The employer’s name (if applicable)
How to Verify Proof of Income
If the prospective tenant is being honest about their income, they should have no problem providing the requested documents. Let them know that it’s a step in your screening process; you’ll also want to have them sign off on a background and credit check. Once you have their permission to conduct these screenings, you’ll need to verify the information they give you. This is vital because some tenants will lie about their income in order to qualify for a rental property.
There are several ways to verify that the applicant is truly receiving the income they claim. This can be done using any of the following methods:
- Contact the employer they listed and confirm that they’re still employed
- Cross-reference bank statements with pay stubs, keeping an eye out for any discrepancies
- Verify that the documents the applicant submitted are current and real
- Ask for a letter to verify social security income (if applicable)
Finding out whether a tenant is being honest about their income—as well as knowing how much an applicant makes—is an essential step in the tenant selection process. Without this information, you may have no idea if a tenant can actually afford to pay their rent in full and on time. If a tenant’s income is too low, you may be doing yourself (and them) a disservice by approving them. Being as thorough as possible before choosing a tenant is the best way to protect your business and your property.
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