- Proof of income is a document or set of documents that demonstrate an individual’s financial stability
- Common examples of proof of income include pay stubs, tax returns, bank statements and employment verification letters
- Proof of income is typically required when applying for loans, credit cards or rental agreements
Proof of income is a verification that's performed by property owners with potential tenants to ensure they have the means to afford their monthly rent.
Lease agreements are legal contracts, so it's important to property owners that they can reasonably be fulfilled. Plus, property owners rely on rent as a source of their income, so they would understandably be interested in how likely potential renters are to make rent and where they stand on employment history, debt-to-income ratio, etc.
When are you asked to provide proof of income?
The most common time you'll be asked to provide proof of income is during the application or negotiation phase of moving into your new apartment. Some property owners will ask that you include proof of income with your application and others will request it once you've been accepted for the unit just to first make sure you meet the income requirement.
It's important to keep accurate income records and be prepared to provide proof of steady income when requested. Common forms of proof of income include pay stubs, tax returns and bank statements. If you're self-employed or have alternative sources of income, such as rental income, you may need to provide additional documentation such as profit and loss statements or rental agreements.
Ways to show proof of income for an apartment
Now that we've discussed why proof of income is important, let's dive into what income verification documents will be sufficient.
1. Pay stubs
If you work a full-time or part-time job where you earn a regular paycheck, you'll likely receive regular pay stubs. A pay stub shows how much you earned within a certain time period. It also shows how much money you paid for insurance, taxes and other investments.
Most likely, you receive a pay stub every pay period, but you can also ask your employer to provide past pay stubs as a way to verify proof of income. Keep in mind that landlords may contact your employer to check that your pay stubs are accurate.
2. Tax returns
When you file your federal taxes for the previous tax year, you'll get an official document showing last year's federal tax return. The tax statement is a legal document that highlights everything you earned the previous year.
Prospective renters can use their wage and tax statement as proof of income. Using last year's tax return is a good option for those who are self-employed — like freelancers or contract workers — because they can show their self-employment income on an IRS form, which proves that they can pay the monthly rent.
3. Bank statements
You can use bank statements as proof of income because they show the landlord every deposit, withdrawal and transaction made by the tenant. However, bank statements don't always portray an accurate income.
For example, if the future renter gets paid on commission, their income may fluctuate month-over-month and a bank statement would highlight these fluctuations in pay. Likewise, self-employed renters may have miscellaneous income that fluctuates over time and may not paint an up-to-date picture of their finances.
4. Income letter from employer
Renters may ask their current employer for a letter that verifies their income. This letter confirms that a renter has the means to pay for rent. If your landlord requires a reference, this is a good opportunity to provide both proof of income and a reference at the same time.
5. Social Security documents
If you live on and receive Social Security payments, you can use the social security benefits statement as a way to show your annual income. While this is a federal document that's credible proof of income, there's one caveat — Social Security benefits could change.
For example, Social Security proof may work when you sign the lease but if any related laws change during that time period, you may or may not be able to use social security as proof of income for an apartment rental when you renew your lease.
6. Disability insurance
If you receive disability insurance from the government, you can use the benefit verification letter as documentation and proof of income. These documents show verifiable income and will help during the tenant screening process.
7. Pension
Some career fields provide a pension after retirement. If you contributed to a pension when you worked, you can request a pension distribution statement as income verification. This will be sufficient documentation to prove income for your tentative landlord.
8. Court-ordered payments
If you receive court-ordered payments like alimony or child support, you can use these to show consistent income. If a potential renter receives alimony or child support, which is a court-ordered payment, that renter can use that as proof of income when applying for a new apartment. You can show your property manager your alimony payments as a source of additional income.
9. Unemployment documentation
If you're currently unemployed and receiving unemployment benefits, you can use this as proof of income. However, unemployment checks usually have a timestamp on them, meaning they'll likely be stopped after a certain amount of time. So, it's smart to have a backup form of income verification for when your unemployment benefits run out.
10. Worker's compensation
If you're receiving worker's compensation due to an on-site injury, you can show your potential property manager the worker's compensation letter outlining what happened, why you're taking time off and how much income you're receiving from the insurance company in the interim. This is a viable way to verify income.
There are some scenarios where you can still rent an apartment with little or no income. However, it's most desirable to have a stable income in order to secure the exact apartment you want.
11. Severance statement
If you were laid off recently but received a severance package from your employer, you may use the severance statement as an official letter to landlords showing them how much you received as a lump sum upon department from your company. While this is not the same as a stable income, it will work in the short term.
Do you always have to provide proof of income to prove income history?
When moving into a new apartment, you might wonder if income verification is in the works for you. The truth is, not all property owners will require you to share proof of income — it's up to their own personal discretion. However, there are clear benefits for property owners resulting from this practice, thus it's quite common. You'll probably encounter it at least once.
Understanding rent-to-income ratio
When you're gathering your proof of income documents, it's a good time for you to check yourbudget, assess your monthly income, review your business expenses, see your student loans and make sure you can actually afford the apartment you're trying to lease.
A general rule of thumb is that renters should budget roughly 30 percent of their salary toward rent. While this method may work for some, the30 percent ratio is not always realistic, especially if you live in a city like New York or San Francisco, where rent is extremely expensive.
As you gather your proof of income documents to verify income, assess all of your bills and financial responsibilities to ensure you'll be able to make your rental payments on time each month.
Calculate all forms of income
You'll also want to review how much money you make each month from non-traditional sources. This is particularly true for self-employed individuals who make money from dividends, investments or annuities. You can show your unearned income with things like an annuity statement, profit and loss statement, dividend income or a tax form.
Make sure to show every source of income to prove you'll be a reliable renter. By verifying income ahead of time, you'll be in a good situation when it comes time to sign the lease agreement.
Preparing to pay rent
As you get ready to rent a new apartment, make sure you have all of the proper paperwork in place. Showing an up-to-date picture of your finance makes you seem organized and responsible, which is a good sign for landlords.
Thinking ahead will help you in the long run
Proving your income can sometimes be a stressful process, but it's a necessary step in many financial transactions. By keeping your records organized and up-to-date, you can make the process as smooth as possible and demonstrate your financial stability to lenders, landlords and government agencies.
It's also important to ensure that the proof of income you provide is accurate and reflects your current financial situation. Inaccurate or outdated documents can lead to misunderstandings or even legal consequences. If you're unsure about what documents to provide or have questions about the process, don't hesitate to ask for clarification.
