Requesting Proof of Income from Rental Applicants

Experienced landlords have seen enough to require proof of income from their rental applicants. To the uninitiated, requesting proof of income may feel like an invasion of privacy; however this reasonable request is an essential step in the tenant screening process to help you decide whether a potential tenant is a good fit for your property. Here are some examples of which documents you can collect as proof of income, why it's so important to do so, and how you can verify the documents as real. Please note that this blog is not intended as legal advice, but for informational purposes only. Laws may vary depending on your location.

What is Proof of Income?

Any official document that shows an individual's earnings is considered Proof of Income. The document will generally show income earned over a specific period of time, usually either on a monthly or yearly basis. Landlords tend to require proof of income to provide solid proof that a prospective tenant indeed makes the amount of money that they claim they make.

Proof of income is widely considered to be an important step in the tenant screening process because it can help you identify and avoid high-risk tenants. In general, it's ideal to select tenants who either individually or collectively make at least three times the monthly rent per month. You want to make sure that they're able to not only pay their rent comfortably, but also afford other necessities like groceries and utilities. Without proof of income, you have no way of verifying whether a potential tenant will actually be able to cover the monthly rent, which can lead to uncertainty regarding your rental income.

As a landlord, you do 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:

1. Pay stubs
2. Federal tax returns
3. W2 or 1099 forms
4. Social security income
5. Bank statements
6. Profit and loss statements
7. Employer letters that state the applicant's job, salary, and date of employment
8. Other documents, such as retirement pension statements or court alimony letters

A quick review of any of these documents should help you to determine whether an applicant is being honest about their income. Regardless of the type of documentation you require, make sure it includes the following information:

1. The applicant's full name
2. The employer's name (if applicable)
3. Identifying information that matches the tenant's rental application, such as social security number and date of birth
4. Their income amount for a specified time period
5. The date the document was issued

How to Verify Proof of Income

If the prospective tenant is being honest and up front about their income, they should have no problem supplying you with the requested documents. Let them know that as part of your screening process, you must verify their income. You'll also want to have them give you the okay to perform a background and credit check. Once you have their written permission to conduct these screenings, you'll need to verify the information they give you to weed out any potential lies or falsehoods.

There are several methods of verification to show that the applicant is receiving the income they claim. Try the following tactics:

1. Contact the listed employer and confirm their employment
2. Cross-reference bank statements with pay stubs, keeping an eye out for any discrepancies or bad editing jobs
3. Verify that the documents the applicant submitted are up to date and visually match other examples you have come across
4. Ask for a letter to verify social security income (if applicable)

What if an applicant can't provide proof of income?

It can definitely raise concerns if an applicant tells you that they can't provide proof of income, but it doesn't mean you need to immediately toss out their rental application. There are other things you can do to protect yourself if you choose to proceed with their application, such as:

Consider co-signers or guarantors

If a tenant's income is difficult to verify or the verified income doesn't measure up to cover the rent, you can opt to require a co-signer or guarantor. For instance, if the applicant is a recent college graduate with little to no prior income, it's common to have a parent or family member co-sign the lease agreement. A co-signer is someone who agrees to be held legally responsible for any damages to the property, lease violations, or missed rent payments by the tenant.

Evaluate alternative income sources

In today's economy, many renters have alternative sources of income such as Etsy shops and local farmer's market booths that do not provide traditional proof of income documents. Applicants may also receive income from investments, retirement benefits, or government assistance programs. These income sources can be verified through bank statements and occasionally on a federal tax return.

Assess rental history and creditworthiness

While credit reports are widely used for revealing an individual's credit history and FICO score, they can also provide information about other sources of income such as credit cards, loans, or other financial accounts. A strong credit score along with a positive rental history can help build a case for an applicant's financial stability even if they are unable to provide reliable proof of income.

Require an additional security deposit

Another method landlords will turn to in situations where applicants cannot provide proof of income is increasing the security deposit. A higher security deposit can act as a financial buffer for you in the event that the tenant misses rent payments or damages the property. Always check your local and state laws before acting, as many cities may have strict rules regarding security deposits.

Conduct an in-person interview

Face-to-face meetings with your potential tenants allow you to ask specific questions designed to gauge an applicant's credibility and reliability. Conducting an in-person interview with prospective tenants gives you an opportunity to discuss their financial situation and employment. During the interview, you will get to know a prospective renter better as a person than written words on an application to help you determine if they will be a good fit for your rental.

Contact their previous landlords

Landlords who have rented to your tenant in the past can provide valuable insights into an applicant's behavior as a tenant and their financial responsibility. They should be able to give you more information about the tenant's stay in their property, how they treated the property, and if the landlord would recommend that individual as a tenant to other landlords.

How to spot fake proofs of income and protect against them

Amazingly, 93.3% of property owners and managers have experienced rental application fraud in the past year. To help protect you from falling victim to these scams, here are some blatant tells that can signal when proof of income might be a forgery:

1. Misspelled words
2. Inconsistencies or irregularities from form to form
3. Formatting errors
4. Numbers that have been rounded
5. The number "0" is replaced by the letter "O"
6. Illegibility
7. Discrepancies between the applicant's stated income and their lifestyle or spending habits

Applicants who are dishonest about their financial history and income can put your property at risk. Often with a little internet research, you can access databases and financial records to confirm employment and income details provided by the applicant.

Frequently Asked Questions

Can proof of income for an apartment be faked?

Yes, be cautious when verifying proof of income. It's best to require two or three official documents to compare to each other when verifying a tenant's income. If you are unsure of something on any documentation, ask the tenant to explain it to you or if they can provide another form of income verification.

Should I deny an applicant who is unemployed?

Not always, but you should absolutely make sure tjat they have a steady and reliable stream of income that meets your rental requirements. Social security, workers compensation, unemployment, and annuity are all valid forms of income as long as they meet your stated requirements.

Is proof of income different for a student?

Students can provide proof of income in several ways. If the student is on a scholarship or has another source of income, an official letter from the funding organization stating the amount of funding and the payment schedule should be provided. Landlords could also consider allowing guarantors or cosigners.

Do all landlords require proof of income?

While it's not legally required, it's in the landlord's best interest to ask for proof of income. Some landlords will bypass this step in favor of more intensive credit screening.

The Bottom Line

When a tenant fails to pay rent, it not only impacts your return on investment but can also lead to costly consequences, such as the eviction process. 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.

If a tenant's income is too low, you may be setting yourself up for future hardships by approving them anyway. Being as thorough as possible before choosing a tenant is the best way to protect your business and your property. By conducting thorough tenant screening with a service like CreditLink Secure, and performing income verification and rental history checks, you can proactively mitigate the potential for missed rent payments in the future and protect your rental business.

Created on: 07/15/24

Author: CreditLink Secure Blog Team

Tags: proof of income, tenant screening , income verification , pay stub,