The most crucial part of screening tenants is ensuring that they make enough money to pay rent each month and the ability to pay it on time. There are several ways to verify proof of income for apartment renters.
On average, a tenant should spend about 30 percent of their income on rent. It's vital to make sure the applicants for your apartment community earn at least that much. Be sure to check your local landlord-tenant laws to ensure you're allowed to ask for the information you're requesting. For example, some states prohibit housing discrimination based on how someone earns their income.
During the screening process, asking for documentation, contacting employers or running a credit check can help verify proof of income for apartments. Here are 14 ways to verify income.
1. Pay stubs
Tenants should have easy access to their pay stubs, either electronically or in paper form. Request that they send stubs for the past three months or so to ensure they've been employed for a while. The stub will list how much the individual earns before and after taxes, how often they get paid and their year-to-date earnings.
2. W-2s and tax returns
Requesting personal tax returns (Form 1040) for the previous few years provides a financial history for the rental applicant. Tax returns show all sources of income, including employment, contract work and interest income.
Check the wages and adjusted gross income, which indicates whether the tenant can afford the rent. The tax return might include the W-2 tax forms, which employees receive at the end of the year, showing how much they earned for the year.
3. Bank statements
Bank statements show an account holder's balance, deposits and withdrawals. Getting copies of bank statements for the past two months gives you an idea of the person's spending habits, income and bill-paying history. Bank statements also provide proof of income for self-employed or retired tenants or those who work as contractors.
Keep in mind, though, that some tenants might be wary of sharing this personal information, so try to use tax returns, W-2s or pay stubs as your primary proof.
4. Letter from an employer
Tenants can ask their employer to write a letter verifying their employment and income. Make sure the letters are on company letterhead with the employer's contact information and specify how much the tenant earns, how often they get paid and how long they've been at the company. It's a good idea to request an employer letter in addition to pay stubs and tax forms.
The letter can also serve as a reference for the renter. Instead of requesting a letter, you can ask for contact information for the employer and contact them directly.
5. 1099 tax form
About a third of U.S. workers are self-employed, according to an Intuit QuickBooks survey. So, chances are one of your rental applicants will fall into this category. The 1099 tax form lists earnings from sources besides regular employment, such as from contract work.
Keep in mind, though, that someone must earn at least $600 from the same organization to receive a 1099 form, and if they have a business, they're not required to receive one. But they should include all income earned, whether they receive a 1099 or not, on their tax return.
6. Profit and loss statement
Self-employed individuals usually have a profit and loss statement, also known as a P&L or can get one from their accountant or bookkeeper. The P&L shows how much the business earns, its expenses and profits. You can use it in support of a tax return to get a complete sense of how much rent a self-employed individual can afford.
7. Contracts or invoices
For rental applicants who are freelancers or independent contractors, requesting copies of invoices or contracts can prove income and ongoing work. While most tenants should have easy access to invoices, not all independent contractor or freelancing gigs require contracts.
8. Retirement savings statement
For people living off a 401(k) or other retirement savings, asking for a statement verifying how much they receive each month could help you prove if they can afford your rent. Another option is to ask for a form 1099-R, showing the distributions paid out from these accounts in the past year.
9. Social Security statement
If someone receives Social Security benefits because of retirement or disability, a benefits verification letter can provide proof of income. These benefits are low, so you should also request other forms of income verification, such as bank statements or tax returns, to get the full picture of their income.
10. Unemployment benefits statement
Some states, including California, have laws forbidding property owners and managers from discriminating against renters receiving unemployment benefits. Check on what's allowed in your area. A federal or state unemployment statement can show proof of income. However, the report will usually list an end date, so requesting secondary proof of income will help you know if someone can afford to rent the apartment.
11. Worker's compensation details
Worker's compensation is a kind of insurance that covers wages and medical expenses for employees who get injured on the job. An insurance company or court typically awards these benefits. If your renter is living off worker's compensation, they can use a copy of the award letter as proof of income. Worker's compensation often has an end date showing benefits will stop.
12. Statement of severance package
When someone gets laid off from their job, they're often given a severance package that includes a lump sum of money or a payout of funds over a period of time. The renter can use a statement showing proof of their termination and how much of a severance they received can show how much rent they can afford.
13. Annuities, interest and dividends
Tenants may have earnings coming from interest, dividends or annuities. Interest income comes from the interest on savings accounts. Dividends refer to income earned from stocks and mutual funds, and annuity income is from an inheritance or insurance. In these cases, asking for statements showing how much someone receives in a month or year, or the tax forms 1099-INT or 1099-DIV, will verify proof of income.
14. Credit check to verify income
Even when you ask for proof of income documentation, it's still a good idea to run a credit check as part of the screening process. A credit check lets you know about a renter's financial health, including their credit score, amount of debt, if they've filed for bankruptcy, any delinquent accounts and payment history, including late or missed bill payments.
Be sure to request consent from the tenant before you run a credit check. If they won't give it, that's a red flag. As a courtesy, before conducting the credit report, ask the potential tenant if there's anything they want to tell you first. This gives renters a chance to explain any dings on their credit report. They can also tell you how they're working to improve their finances.
How to verify proof of income for apartments
Depending on a renter's situation, several documents can serve as proof of income for apartment tenants. It's usually a good idea to ask for multiple pieces of information. This will give you a better sense of someone's financial situation. If a tenant tries to submit a fraudulent document, you can check that information matches up. Listing your property on Rent.com lets you accept applications and conduct screenings online.