Landlords should ask prospective tenants for proof of income to show that they can afford to pay rent and to determine if they’re committing fraud with forged documents. Pay stubs are the best proof of income, but landlords should also collect at least one other proof of income document and compare the two.
Collecting proof of income from an applicant is just one step in good tenant screening practices. MyRental is a comprehensive tenant screening software that helps landlords assess credit, check backgrounds, and check eviction history. Online applications are free and plans start at just $19.99 per applicant.
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How to Verify an Applicant’s Income
You can verify income manually by requesting documents that show proof of income through a tenant screening company or through a property management service. A property management service is easier and saves time, but costs more. However you choose to verify income, tenants should be able to prove that they make at least three times the current monthly rent.
Types of Documents That Can Verify Income
|Pay Stubs||Primary proof of income for any W-2 employees|
|Tax Returns||Primary proof of income for self-employed small business owners|
|Bank Statements||Secondary documents used to corroborate pay stubs, tax returns, or Social Security benefits|
|Letter from Employer||Secondary documentation used with W-2 employee pay stubs|
|Profit and Loss Statement||Secondary proof of income for self-employed tenants|
|Social Security Benefits Statement||Primary proof of income for retirees|
|Court Ordered Agreement||Primary proof of income for those collecting alimony or similar payments|
Some landlords include overtime, bonuses, seasonal pay, and hazard pay when verifying an applicant’s income. However, since these earnings usually aren’t consistent, it’s always best to use the applicant’s base salary in order to qualify them, and only use variable earnings if they’re on the cusp of qualifying.
Here are the seven ways a renter can show proof of income:
1. Pay Stubs
Pay stubs show an applicant’s full name, employer’s name, and contact information. Pay stubs also show how much gross income an applicant earns and how often they receive paychecks. For example, pay stubs will verify a tenant’s income year-to-date as well as his or her per-paycheck earnings, including any overtime or bonuses.
Pay stubs are the most reliable proof of income, and should be requested along with a secondary source of income verification when screening applicants. However, only W-2 employees have pay stubs. Self-employed applicants and independent contractors will have to show other documents that prove their income, such as tax returns and bank statements.
How to Get Applicants’ Pay Stubs
Most applicants should be prepared to provide pay stubs. Landlords should clearly indicate in the application instructions how many pay stubs are required to expedite processing. The applicant will have access to their pay stubs each pay period, either online or as a hard copy. Since applicants usually don’t want a landlord to keep their pay stubs, landlords may take a photo, make a copy of a physical stub, or request a PDF copy of the pay stub via email.
To screen a tenant based on their income, a landlord should request the applicant’s two most recent pay stubs. It’s up to the landlord how they want to keep track of the applicant’s pay stubs. Some landlords prefer to save everything in digital files, while others prefer to have a hard copy kept in a file in a secure place.
How to Verify Income Using Pay Stubs
Now that you have the pay stubs, it is time to verify them. This can be done by checking the pay stubs for the amount of income per pay period. Most W-2 employees are paid bi-monthly, and you’ll want to multiply their per-paycheck earnings by two to get their monthly earnings. You can also check year-to-date earnings.
Below is an example of a standard paycheck. The four things you’ll want to look for when verifying proof of income are numbered with a short explanation for each.
- Employer information: Employer name and address, which you can use as a contact.
- Prospective tenant’s information: Name and current address, which should match their application.
- Current total earnings: Gross income for pay period.
- YTD gross: Year-to-date gross income, showing how much the applicant has earned this year.
“Another way to ensure you are receiving accurate pay stub information is to call the employer and ask about the tenant. Are they still employed and is employment expected to continue? Is the amount listed on the pay stub correct? Is there any anticipated change to pay in the next 12 months? However, understand that many employers won’t answer these questions on the phone. The employer may send you a form to fill out with the tenant’s signature authorizing they release the information.” – Stacy Brown, Franchise Operations Manager, Real Property Management
Pros & Cons of Accepting Pay Stubs
The pros of accepting pay stubs as proof of income for rental properties include:
- Pay stubs are easy for the landlord to read.
- The applicant can obtain them with little effort.
- It’s simple for the landlord to verify that the applicant works for the employer listed on the pay stub.
The cons of accepting pay stubs as proof of income for rental properties include:
- Applicants can have fake pay stubs created online.
- Employers won’t verify an employee’s income over the phone.
- Overtime listed on the pay stub can give the impression of higher income that the tenant may not earn consistently.
Obtaining pay stubs can be time-consuming because landlords have to track down the applicant and remind them to send them to you. Landlords also have to file or dispose of tenant pay stubs once they’ve been reviewed. MyRental can help do this for you. They screen the applicants and collect their proof of income verification online. All you have to do is log on and check out the applicant’s digital file.
2. Tax Returns
Tax returns can be a supporting document for W-2 employees or a primary document for self-employed applicants, like an independent contractor or business owner. However, it’s best to get tax returns in addition to either pay stubs or bank statements. You’ll typically want to get the last two years of tax returns to verify income.
How to Get Applicants’ Tax Returns
The landlord must ask the applicant for their tax returns. The applicant can get the copy they filed directly from the IRS, get it from their accountant, or download it online. Some applicants use tax preparation software and can access digital files to print, email, or upload a PDF version of their tax return.
If you use landlord software systems like Avail rather than doing it manually, they will request tax returns from the applicant, upload it to their digital file and then provide you with access to it. Landlords who choose to use a system like Avail can also get access to additional tenant screening, lease management, and property maintenance tools.
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How to Verify Income Using Tax Returns
When screening tenants, landlords should be sure to request two years of tax returns—especially if it’s the only proof of income available. Returns will show where a prospective tenant worked for the past two years as well as their overall income. The more tax returns a landlord is provided, the more financial history can be considered when deciding on a prospective tenant.
Tax documents come in various forms, but the most common are W-2s for employees, 1099 forms for the self-employed, and 1040s for sole proprietors, which show all income for the past fiscal year. While W-2s and 1099s are tax documents rather than tax returns, they can be used in lieu of tax returns since they have year-end income information.
Below is an example of a 1040 tax return. A landlord can look at the applicant’s contact information and verify that it matches what’s listed on their rental application. You can then look at the wages and their gross adjusted income to verify that a prospective tenant can afford the rent.
- Type of document: 1040 tax return for 2018.
- Tenant information: Name and address, which should match the name and address on the rental application.
- Income: Shows their earnings before deductions, which will verify whether they can afford the rent.
- Totals: This shows the applicant’s adjusted gross income, which takes into account deductions.
“If you’re worried about a forged tax return, you can verify the document by doing an internet search of the company on the tenant’s tax returns. See if the company exists, look up the address and phone number, and then call the company to confirm the tenant works there. If there are previous employers on the tax returns, do the same thing to verify that the tenant also worked there. If you find any discrepancies, ask for additional documentation or decline the tenant’s application. Using these methods, we have disqualified hundreds of applicants who claimed they met all the tenant requirements but actually didn’t.” – Eric Bowlin, Landlord and Founder, Ideal REI
Pros & Cons of Accepting Tax Returns
The pros of accepting tax returns as proof of income include:
- Landlords get a comprehensive look at the applicant’s past earnings.
- Landlords who have set up their own REITs are more sure of their returns.
- Tax returns don’t overstate an applicant’s income.
- Tax returns are harder to forge than other documents.
The cons of accepting tax returns as proof of income include:
- Tax returns are harder for applicants to share.
- Tax filings may not account for current bonuses and raises.
- Tax returns aren’t current because they show earnings from the previous year.
- Returns may disqualify an applicant who doesn’t properly report all their income.
Interpreting an applicant’s tax documents can be difficult. Avail is an online property management software that makes it easy, with online tenant screening services like verifying proof of income and more. You can use them to market properties and screen applicants as well as verify income. Landlords who use Avail can manage their first unit for free.
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3. Bank Statements
Asking for an applicant’s two most recent monthly bank statements is a great way to obtain supporting documents for use with pay stubs to verify a tenant’s income. Statements can also be used as a secondary proof of income if an applicant is self-employed. If this is the case, landlords should collect tax returns as primary documents.
Bank statements have several unique benefits for verifying tenant income, including the ability to see a tenant’s entire banking history and check their cash reserves. If the applicant has several bounced checks or an overdrawn account, they may not have the financial stability that you want in a prospective applicant.
Bank statements can also be used to verify other sources of income, such as if an applicant has a part-time job or additional income that isn’t reflected on pay stubs. Babysitting, handyman services, and selling baked items are examples of income that isn’t usually shown on pay stubs.
How to Get Applicants’ Bank Statements
Bank statements can be a great way to get insight about an applicant’s finances, but you have to get them from a tenant in order to review them. The easiest method for the landlord to obtain them is to ask the applicant to email them a PDF of their most recent statement, which should show itemized transaction history, including deposits and withdrawals.
“A tenant who bristles at having to show income through their bank statements should send up a big red flag for the landlord. The ability to pay should be a point of pride, not discomfort.” – Elizabeth Gibson, Chief Content Officer, EZ Landlord Forms LLC
How to Verify Income Using Bank Statements
The landlord should ask applicants for two of their most recent statements so they can see the banking history over the past two months. The more statements you can get, the longer you’re about to look back in time, and the more you can see a tenant’s financial position and transaction history. This helps you verify their ability to afford the rent.
Typically, landlords should hope to see at least three to six months’ cash reserves in addition to consistent income deposits. In the bank statement example below, you can see the bank’s name, the applicant’s name and address, and the statement’s date. You can also see a prospective tenant’s total deposits and withdrawals. If the applicant submitted a primary proof of income document, match that income with the bank deposits to ensure it’s correct.
- Type of document: Bank statement showing bank name and address.
- Applicant information: Name and address, which should match the name and address they wrote on their rental application.
- Statement period: This shows the dates of the statement (probably monthly).
- Totals: Shows the applicant’s total deposits and withdrawals, which you can use as a primary proof of income.
Pros & Cons of Accepting Bank Statements
The pros of accepting bank statements as proof of income include:
- Bank statements show current information that can be printed the same day.
- Statements are easy for the applicant to get and send.
- Landlords can use bank statements to see an applicant’s cash position.
The cons of accepting bank statements as proof of income include:
- Bank statements are easy to forge.
- Some applicants feel uneasy about releasing such personal information.
- Statements can be time-consuming to read through if there are a lot of transactions listed.
In most cases, a bank statement will be used as a secondary source of proof of income. However, if your applicant is self-employed, this document may become your key source for income verification.
4. Letter From Employer
A letter from an applicant’s employer is an important piece of documentation because it can serve as both proof of income and as a reference letter. However, it shouldn’t stand alone. It should be submitted in addition to one or more other proof of income documents, preferably pay stubs if the applicant is a W-2 employee or tax returns if the tenant is self-employed.
The letter from the employer should outline how much the applicant earns and how often they get paid. It should be prepared on a company letterhead that includes the company name, address, phone number, and contact person. It should also state how long the applicant has been at the company and their current position.
How to Get a Letter From an Applicant’s Employer
A letter from the applicant’s employer proves current employment verification and confirms income statements made on an application. Many large companies have templates and can provide them to the applicant quickly, while smaller companies may need to prepare one from scratch. If so, be clear about the information you need to verify tenant income.
How to Verify Income Using a Letter From an Employer
You can verify an applicant’s income with a letter from their employer by seeing how much income they list on their application and how much income the employer says they make. You can then compare that to their pay stubs, bank statements, or other sources of proof of income.
Below is an example of an employment letter. Landlords can look at the name and contact information of the employer to verify it with an online search or a phone call, then match the applicant’s information with what they wrote on their application. Finally, check that their wages qualify them as strong tenants who can afford to pay rent.
- Type of document: Letter from employer.
- Employer information: Name, address, and contact number.
- Applicant information: Potential tenant’s contact information.
- Salary: Earnings and how long they’ve been employed, which should match the earnings reflected in their primary document.
A letter from an employer provides helpful information, but needs to be verified because it can be easily duplicated or forged. The best place to verify an employment letter is by searching for the business online and then comparing the online contact information to the information in the letter. You can then call the employer and verify the applicant’s employment and position as well as ask for a character reference.
Once you’re on the phone with the employer, see if they will confirm the applicant’s salary. Employers are not required to divulge this information, but you can at least have them verify the applicant’s current employment, length of employment, and job title.
Pros & Cons of Accepting a Letter From an Employer
The pros of accepting a letter from an employer as proof of income include:
- Verified easily with a quick call to the employer.
- Provides up-to-date with current employment information.
- Less invasive than a bank statement.
The cons of accepting a letter from an employer as proof of income include:
- Applicant needs time to obtain this if they don’t already have it.
- Is very easily forged.
- Not reflective of overtime and commissions.
A letter of employment is a good source for primary and secondary proof of income, especially if it is confirmed by calling the employer. Most employers are familiar with handling these types of inquiries, so it’s best to take the extra step to verify letter contents.
5. Profit & Loss Statements
A profit and loss statement (P&L) is a commonly used document for small business owners. It can be used to show a self-employed applicant’s proof of income because it shows their business’ earnings and expenses. A profit and loss statement shouldn’t be accepted alone, but should be used as a supporting document with bank statements or tax returns.
How to Get Applicants’ Profit & Loss Statement
A tenant can obtain a profit and loss statement for a landlord in one of three ways. They can ask their accountant or bookkeeper, or pull it from their records themselves. Alternatively, an applicant can create a new profit and loss statement specifically to show proof of income for the property they’re trying to rent.
How to Verify Income Using a Profit & Loss Statement
A profit and loss statement (P&L) is best used with supporting documents or an accountant’s verification. The P&L statement shows how much money the business is making in revenues as well as its profits. Then, compare it to business bank account statements or tax returns to see if the amounts match.
Here’s an example of a profit and loss statement. Look at the company contact information so you can verify it exists by calling the number shown and doing an online search. You can see how much the company earns.
- Company information: Name, address, and phone number so you can call to verify it exists.
- Type of document and date: Profit and loss statement, which shows a business’ financial standing during the period listed.
- Profit or loss: This shows the total profit or loss during the period stated, and whether you can see if the profit is enough to cover the rent.
Since a profit and loss statement is harder to verify than a W-2, it’s typically used as a last resort or as a supporting document. You should at least Google the applicant’s company to verify how long they have been in business and any other information you can find that the business is real and operating.
Pros & Cons of Accepting a Profit & Loss Statement
The pros of accepting a profit and loss statement as proof of income include:
- Provides a good overview of the applicant’s business finances.
- More difficult to forge than other documents, such as a letter from an employer.
- Demonstrates trends in business growth helping landlord determine long-term solvency to pay rent.
The cons of accepting a profit and loss statement as proof of income include:
- They may not be accurate if the applicant filled it out themselves.
- It needs to be verified by comparing it to bank statements.
- It can be time-consuming for a landlord to review.
Profit and loss statements will show you the applicant’s business income, but there is no real way to verify the document unless you compare it to bank statements or tax returns. Most landlords will want three years of business tax returns to demonstrate the long-term history and business income trends. This is similar to lending practices when applying for a mortgage.
6. Social Security Benefits Statements
A Social Security statement shows the applicant’s earning records from Social Security or disability. It’s most often used by retirees to show proof of income, and it lists the retirement benefit amount the applicant receives or will be receiving. This is an acceptable alternative to pay stubs for an applicant who isn’t working.
A Social Security statement is generally used to verify income by retirees. It’s best when used as a supporting document along with the applicant’s tax returns or bank statements. Because Social Security or disability income may be low, it’s important to look at the bank statements to verify the applicant’s cash position. They should have at least three to six times the monthly rent in the bank, or be receiving three times the monthly rent each month.
How to Get Applicants’ Social Security Benefits Statement
The applicant will need to obtain a Social Security statement and then give it to the landlord. The applicant may already have a copy in their files. If this isn’t the case, they can go online and log in to their Social Security account to request a Social Security statement. They can also call a regional office or go there in person to request the statement.
How to Verify Income Using a Social Security Benefits Statement
A landlord can verify the information on the Social Security statement by comparing it to their bank statements or tax returns. The Social Security benefits statement will show how much the applicant is earning per month from Social Security or disability, and when they will receive it each month. Be sure to check that the Social Security benefit amounts match a secondary document.
Here’s an example of a Social Security (or disability) benefits statement. You want to look at what type of statement it is and how much the monthly income is, as well as the yearly income.
- Type of document: Social Security statement
- Applicant information: Name and address should match the application and bank statement.
- Monthly income: This shows monthly income after any deductions.
- Pay date: Date applicant receives the income.
The landlord can call the Social Security office number listed on the letter and ask to verify that the applicant receives the benefits mentioned in the statement. Due to confidentiality laws, the office may not confirm this until the applicant gives their permission for them to do so.
Pros & Cons of Accepting Social Security Benefits Statements
The pros of accepting Social Security statements to verify income are:
- Benefits statements show stable government income.
- Social Security statements help you verify a retiree’s income.
- Income is usually not taxed, so it gives tenant more income to spend on renting a property.
- Statements are easy to verify for fraud with the administering office.
The cons of accepting Social Security statements to verify income are:
- Applicant must request a letter of earnings verification if they don’t have their current one.
- The amount may differ as laws change.
- It doesn’t provide insight into the applicant’s financial history, like a bank statement or pay stubs.
Social Security income can be a reliable source of income for applicants. The amount doesn’t change much and it’s typically guaranteed, making it less volatile than self-employment or even W-2 income.
7. Court-ordered Agreement
A court-ordered agreement is a signed legal document between an arbitrator and a party that the court has ordered to pay. The most common types of court-ordered agreements include spousal alimony and child support, as well as a payout from a trust or a lawsuit.
Although court-ordered agreements are far less common than pay stubs, they are still an acceptable document for proof of income. A court-ordered agreement shows the source of the applicant’s income, the amount, and the frequency the income is received. For example, a child support order may require one parent to pay the other $24,000 per year in monthly increments of $2,000.
How to Get an Applicant’s Court-ordered Agreement
An applicant may already have a copy of their court-ordered agreement in their files. If they don’t, they can get it from their attorney or from the court clerk’s office where the ruling took place. Unless they’ve been sealed, these documents are public record, meaning you might be able to look it up yourself via the county clerk’s office.
How to Verify Income Using a Court-ordered Agreement
You should first see if the payments come in the form of monthly payments or one large lump sum. If it’s a lump sum, it’s a good idea to request additional bank statements to make sure there’s still enough money left to pay the required rent. If the agreement is structured as a monthly stipend, you need to ensure it’s at least three times more than the rent.
Here’s an example of a court-ordered agreement. Typically, you’ll want to check the total amount received and how often it’s received.
- Type of document: This lets you know that the document is a court-ordered agreement.
- Earnings: You can see what the earnings are and how frequently they’re received
Pros & Cons of Accepting Court-ordered Agreements
There are both advantages and disadvantages to accepting court-ordered agreements when confirming income.
The pros of court-ordered agreements are:
- Court-mandated and enforceable legal document.
- Easy to verify online or with a phone call to the court because it is public record.
- Simple for the applicant to obtain.
The cons of accepting court-ordered agreements are:
- It doesn’t give an overview of the applicant’s work history.
- It could be appealed or changed through litigation.
- It doesn’t provide much insight into the applicant’s financial history.
Keep in mind when using a legal document to verify income that many settlement payments end at a certain time, so make sure the income continues during your lease term.
Renter Has No Proof of Income
There are times when the applicant cannot prove their income or may not be able to afford the property. When this happens, it is important to handle declining the applicant properly. It’s a good idea to create a rejection letter with a checklist of potential legal reasons an applicant is denied.
”A best practice is to create a set of acceptance policies and treat every prospective applicant the same according to those policies.” – Frank Jachetta, Account Executive for MyRental
Knowing the best documents to collect for proof of income and how to read and verify the documents will help you make good decisions when choosing a tenant. Create a system to verify income that will help you be compliant with the Fair Housing Act, choose good tenants, and keep your property rented.
Tips for Spotting Fake Proofs of Income
Landlords have to ensure tenants can afford to lease their property by verifying income. Tenants know this and will sometimes provide fraudulent documents. Knowing what to look for and remedy tips can help you vet your prospect’s proofs of income, thus saving you time, money, and headache.
Some tips for spotting fake and fraudulent proofs of income include:
1. Spot Fraudulent Proofs of Income by Listening to Your Gut
If the applicant’s income doesn’t seem to add up or if you feel something isn’t right, go with your intuition, and verify everything. If you have trouble, you should reject them as a tenant. If there are issues in the beginning, they will typically become magnified later on and may cost you in eviction and legal fees.
2. Require Tenants Sign a Form 4506
If you want to verify the information on a profit and loss statement or validate a potential tenant’s income, you can request a transcript from the IRS with a signed Form 4506. The transcript will show the tenant’s federal tax documents. The transcript is the official numbers received and recorded by the IRS, and is stamped as official so it can’t be forged.
“Fraud is something that is unfortunately abundant in the rental industry. Tenant income verification fraud can be prevented by asking for further documentation, such as a bank statement in addition to pay stubs. This allows landlords to cross reference the company name on the pay stub and amounts being deposited on the bank statement to spot any discrepancies. In addition, calling out to the applicant’s employer to verify their employment is another quick preventative that can save you lots of headaches in the future. The surest way to protect yourself against tenant application fraud is to request that your applicants complete reports including credit, criminal background, and eviction reports.” – Christine Cieri, Community Manager, Avail
3. Compare Pay Stub Income to Year-to-Date Income
Ask the applicant for their two most recent pay stubs, and then look at their per-pay-period income and the year-to-date (YTD) amounts. Oftentimes these numbers won’t match up if the pay stub isn’t real. This avoids having to evict a tenant a few months after signing a lease. You should also double-check the pay stub with another form of income verification.
4. Review the Ongoing Statement Balance
To spot a fake statement, make sure all deposits are properly reflected in the total ledger balance. A forged bank statement doesn’t usually have the correct ongoing balance because the applicant has probably added deposits and withdrawals that aren’t included in the running balance.
5. Do an Online Search for Tenant’s Business
If your applicant is self-employed, do an online search of the company listed on the applicant’s application. Verify the company exists and how long it’s been in business. You can perform the same search for applicants providing W-2s and letters of employment.
Frequently Asked Questions (FAQs)
This guide discusses documenting proof of income when finding renters. For landlords, it’s important to make sure tenants can afford your property. For renters, it’s important to have your documentation at application. These are some frequently asked questions we’ve encountered and answers that might give you further insights. If you don’t see your question below, be sure to post it on our Fit Small Business forum.
1. Can I Get an Apartment Without Proof of Income?
Apartment complexes almost always verify income. If you don’t make enough to qualify, consider a lease guarantor. A lease guarantor is similar to a co-signer for a loan, and this could give the landlord more confidence in your application. However, if you miss a rent payment, they will be responsible.
2. Can I Rent an Apartment Without a Job?
One of the first things an apartment manager will verify is income. If you’re currently unemployed and looking for an apartment, you may want to think about getting a roommate or becoming someone else’s roommate until you can document your income. If you have sizable savings and can provide statements, some landlord’s may rent to you.
3. Should I Rent to Someone With Proof of Income but Bad Credit?
Renting to someone with bad credit raises the landlord’s level of risk. Understanding why they have bad credit may help with your decision. There are times when extenuating circumstances occur, such as a sick family member or unexpected company layoffs. Get the full story before you agree to accept them, and make sure you verify income.
4. Can I Rent an Apartment With No Rental History?
Apartment management and homeowners prefer to rent to tenants with rental history, but you can rent an apartment or home without it. The best way to accomplish this is to have your credit in good order, have enough savings to cover at least two months of rent, and provide proof of income.
5. Do Landlords Use Gross or Net Income?
Landlords calculate a tenant’s debt-to-income ratio using the tenant’s gross income. In most cases, landlords want to see at least three times the amount of gross income to the rent. For example, if you make $3,000 per month gross, ideally you’ll want to stay around $1,000 per month for rent.
A renter needs to prove they can afford to rent your property. This is done when they submit documentation proof of their income. These documents are verified by the landlord to prevent fraud and to get a closer look at their finances, which help determine their suitability as a prospective tenant.
For landlords who want help with more than just income verification, Avail also helps landlords with tenant screening, marketing a property, accepting online rent payments, as well as creating, signing, and managing leases. Landlords can buy Avail services a la carte or sign up for a plan, and the first unit is free.
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