Income verification documents, which are typically requested when you’re applying to rent a home or apartment, are documents that prove you have a job and are earning an income.
A landlord requests these documents to ensure that you’re earning enough to cover your rent payments each month. The income verification paperwork requested may vary from landlord to landlord, and the documents may also differ, depending on your specific career situation. The landlord is simply doing their due diligence to make sure you can afford the rental.
How to Show Proof of Income to Rent an Apartment
There are a number of ways that prospective renters can show proof of income to a prospective landlord or property management company. The types of documents you need to produce will likely depend on the specific request from the landlord.
Generally, there are a few standard income verification documents that landlords and property managers are looking for:
• Pay stubs
• Tax returns or W2 forms
• Bank statements
• A letter from your employer
Typically, a landlord will request two forms of income verification. Often, your pay stubs and tax forms will suffice as proof of income. But in some cases, you may need to submit several months’ worth of bank statements. You might even need to ask your employer to write you a letter to assure the landlord that you have a job and do have income.
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How to Show Proof of Income if You’re Self-Employed
If you’re self-employed, the process can be more complicated. You may need to submit 1099 tax forms, or your personal tax returns showing regular and steady income going back a couple of years. Depending on the nature of your self-employment, you may have business tax returns, such as a Schedule C if you own and run a small business, that you can use to verify your income.
You can also use bank statements from your business bank account to show a landlord that you have income. The documents required will likely be similar to those you need when applying for self-employed personal loans. Ask the landlord what will work best for them so you will know exactly what documents you should present.
How to Show Proof of Income for Side Hustles
You may have a side hustle—perhaps you make and sell crafts online, for instance—and that’s similar to owning a small business. And you should be reporting the income you make from your side hustle to the IRS on your tax return. By presenting your tax return to a landlord, you can prove that you’re making side hustle income.
If you’re working for a ridesharing app or food delivery service, the company should be sending you a tax statement with your annual earnings so that you can report them on your tax return. You can always show a copy of that tax statement to a prospective landlord.
Why Proof of Income is Important
Proving your income is important when you rent an apartment—or apply for credit, for that matter—because it shows that you have money coming in every month, and are able to fulfill your financial obligations. In other words, it shows the property owner that you can make your rent payments.
Understanding Rent-to-Income Ratio
Along with proving your income, you need to make sure that your rent is not eating up too much of your paycheck. That’s where the “rent-to-income ratio” comes into play. It calculates the percentage of your total income that you’re spending on rent.
The general rule of thumb is that you shouldn’t spend more than 30% of your gross monthly income on housing costs. Depending on where you live, those costs may be a higher or lower percentage of your income, but try to aim for around 30%.
To figure out your rent-to-income ratio, divide your total annual earnings by 12, which gives you your monthly earnings, and multiply that number by 0.3 (or 30%). The result is how much you can afford to spend on rent per month.
Annual earnings ÷ 12 x 0.3 = How much you can afford to pay for rent
For example, let’s say you earn $50,000 a year. Divide that number by 12 and multiply it by 0.3 and you get $1,250. That’s what you should aim to spend on rent each month. Depending on where you live, you may need to spend more, but that figure gives you a ballpark of where you should be in order to have enough money to pay for your other expenses and hopefully, contribute to your savings as well.
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How to Best Prepare to Pay Rent
When you are approved by a landlord to rent an apartment, you’ll need to plan and prepare to pay your rent on time and in full every month.
That means having your finances in order. First, you should have a checking account set up. Typically, you’ll pay your landlord by check or through an online portal and either way, you’ll need a bank account in order to do this. You may be surprised to learn that more than 6% of U.S. households (or more than 14 million people) don’t have a bank account. Fortunately, it’s easy to open an account if you don’t have one.
Next, make sure that you’re properly budgeting for your rental expenses. You want to make sure that you have enough money in your account to cover the rent when your landlord cashes your check. This budget planner app can help.
There are other expenses that can go along with renting an apartment or home that you may need to pay. Here are a few you should be aware of:
• Utility bills
• Parking, maintenance, and fees for amenities such as a gym or pool
Finally, know the terms of your lease. It’s common for rent to go up once a lease expires, which you may discover when you go to re-sign or renegotiate the rent. Unfortunately, renting is not like a fixed-rate mortgage when you have a monthly rate locked in. So don’t be surprised if the costs of staying in your apartment go up after your lease expires.
Income verification documents offer proof to a landlord or property management company that you have enough money coming in every month to pay the cost of an apartment or home rental. Typically, pay stubs, tax returns, and bank statements are the only forms of documentation you need. However, if you are a small business owner, you may be required to produce additional documents. The good news: Once you are approved to rent, you can start the process of moving in.
Before you rent a home or apartment, it’s a good idea to make sure your financial house is in order, and SoFi Insights can help. You can track your money all in one place, keep tabs on your spending, and save for goals like rent.
Can you rent an apartment with no income?
It is possible to rent an apartment with no income, though it likely will be quite difficult. In this instance, having a high credit score can help, because it shows you have a track record of paying your expenses. A healthy savings account can also be useful to prove you have money in the bank.
Can proof of income for an apartment be faked?
It is possible to fake proof of income for an apartment by using online tools to create fake pay stubs and other documents. This constitutes fraud and is illegal, but it does happen.
Is proof of income different for a student?
Yes, it can be, yes. If a student has no income because they are studying full-time, they may need to get a co-signer like a parent or guarantor in order to secure a lease.
Photo credit: iStock/Anna Kim
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.