Proof of Income: What It Is and What You Can Use
Scoring your next apartment is more than finding the perfect place to live or a trendsetting neighborhood. You'll also need to show proof of income with documentation for your next landlord.
Landlords and property managers want a clear understanding of your finances and whether or not you’ll pay rent or can afford to do so. Income verification is a standard part of the apartment application process and occurs before you sign a lease agreement.
Proof of income for an apartment is crucial, though it can also be challenging to know how to start or what you'll need. Time is of the essence when you live in competitive cities with low rental inventory. Don’t worry, we did all the work for you, so you have everything you need to know about proof of income and how it can be an excellent tool for your rental business.
What is Proof of Income for an Apartment?
Proof of income verifies that you already have a reliable income source, allowing you to comfortably pay for your rent. Your landlord or property manager will require documentation to support the income listed on your apartment application.
The process of verifying income is standard for the rental industry. Landlords aren't willing to take your word that you can afford to pay. A tenant can say they have a specific, consistent income before leaving the landlord in a bind if they can't pay rent—the income verification process and figuring out what you can comfortably afford.
New renters can also benefit from the verification process. They may not have a clear understanding of what they can afford. The process ultimately helps tenants figure out what landlords are looking for and what type of rent is realistic for their income.
What Can Be Used as Proof of Income?
The good news is there are several ways to prove your income. Whenever possible, verify what documents are needed by a landlord in advance. It’s always wise to bring along a few records if your property managers prefer one document over another.
Here are some of the most common ways to prove your income for your next apartment:
- Pay Stub - Pay stubs are given out at the end of each pay period. It should detail your hourly rate or salary and how often you work. Your pay stub may also be used to verify other details in the tenant screening process, like who employs you.
- Proof of Income Letter - A proof of income letter is provided by an employer and includes how much an employee makes. If you're new to your job and haven't collected a paycheck yet, you'll need a proof of income letter.
- Wage and Tax Statement (W-2) - A W-2 statement is used for tax purposes. It also provides information about your annual earnings. If you have multiple employers, your landlord may want to see a W-2 from each.
- Last Year's Tax Return (1040) - Tax form 1040 details all the sources of income that you've earned over the tax year. Landlords usually want more than a tax form because it only proves your income from the previous year. Your landlord will still need to verify your job and salary status to ensure an accurate report.
- Bank Statements - Bank statements are typically used to verify income if you're self-employed or have side-hustles in addition to your day job. Without a traditional source of income, landlords need a better idea of how much you really earn. Keep in mind that a bank statement only details the amount of money you deposit in the account and the amount coming out. Landlords can't use it to verify job status.
- Pension Distribution Statement - Pension statements can also be used to prove income. Landlords will probably ask for a tax form 1099-R to help verify your annual pension distribution income.
- Social Security Proof of Income Letter - If you receive social security income, you can submit it as proof of income. You'll need a letter or other documentation that details your monthly benefits. You can also request one online here.
- Court-Ordered Agreements - Any alimony payments, settlement fees, or child support are also considered forms of regular income. The court will provide you with a letter detailing the agreements. If you don't have one, speak to your lawyer or call your local courthouse to track one down.
- Workers' Compensation Letter - Getting injured on the job may lead to a workers comp claim that serves as part of your income. In some cases, it may replace your income entirely. Submit your proof of income with a letter from the court or an insurance company.
- Unemployment Compensation Letter - Unemployment assistance from getting laid-off is also part of your verifiable income. Of course, there are caps on unemployment benefits. Contact your unemployment office in your county to ask for an unemployment compensation letter.
- Annuity Statement - An annuity statement helps a landlord understand how much you receive from an agreement with an insurance company. These statements show the exact amount of money you earn and indicate a payout schedule from the insurance company.
- Interest and Dividend Income - If you’re an entrepreneur and love to invest, you can also provide documentation about your dividends and interest payments. Your landlord may also ask for your 1040 to verify they were reported and check other areas of your income.
- Severance Statement - Getting laid off or leaving your job isn't always a dealbreaker for landlords. Depending on your job, you may have received generous severance package to serve as your income. Their severance statement shows how much the company pays you. Ask your employer to provide the document.
Landlords may require a combination of documents to support proof of income. This situation usually applies if you earn a temporary stream of income.
For example, a dividend statement, in addition to last year's tax return, provide an accurate picture of your finances. Landlords may encounter forged documents from past tenants and require multiple forms of documentation to make sure your income is what you say it is.
How to Show Proof of Income If You're Self-Employed
It wasn't long ago that self-employed renters had a difficult time proving their income. Landlords often said no or required endless forms of documentation over several years to ensure a stable income. But with the rise of the gig economy and self-employment becoming the norm, landlords are becoming more relaxed about renting to non-traditional workers.
If you're self-employed, you'll still have to put in extra effort to document your income and put your prospective landlord at ease. Here are some ways to secure self-employed proof of income for apartment.
- Tax Form 1099 - If you earned over $400 in self-employment income, you should have received a 1099 form. It lists all the income you've made over the past year and details how much tax you pay on that income.
- Bank Statements - Bank statements prove that money is coming into your account every month. If you're self-employed, you'll likely need multiple statements dating back a few months to get an estimate of your regular monthly income if it fluctuates.
Regardless of the proof of income your landlord or property manager requires, all documents should contain the following information:
- Income Amount
- Your Full Name
- The Landlord's Full Name
- Employer Name (if applicable)
- Additional Identifying Information (Social Security number, birth date, etc.)
What is the Rent-to-Income Ratio?
Proving your income is one step in the process, as you also need to comfortably afford your rent. If you’re new to apartment hunting, how do you know what you can really afford and not feel rent-burdened?
Apartment List's rent calculator is a valuable tool that'll help you calculate the amount you can comfortably afford for monthly rent payments.
The rule of thumb is not to spend more than 30% of your monthly income on rent. Your household income should also be 2 to 3 times your monthly rent. For example, if your rent is $1,000 per month, your landlord will want you to earn around $3,000 per month to comfortably afford your rent. However, if you live in an expensive area like New York City, it's common for renters to pay much more.
Keep in mind the 30% rule doesn’t account for student loans, credit card debt, or if you pay for your own health insurance. Those added expenses can quickly make the 30% rule for rent untenable. This is where some creative budgeting comes in. Make sure you can pay for your rent, utilities, movers, food, and other bills and still have money left over to live comfortably.
Can You Rent an Apartment With No Income?
If you're wondering if you can rent an apartment with no income, the answer is, "Maybe." Depending on your area and the rental market, landlords may accept a lack of income. However, you'll need to stay resourceful and diligent in the process. Here's how to prepare:
Get a guarantor: A landlord may accept a guarantor to co-sign your lease. As the name implies, the guarantor is legally required to pay your rent if you don't make the payment yourself. A parent or relative with disposable income to share and willingness to cover your rent is a good option for a guarantor.
Your landlord will want a guarantor with a healthy income. After all, your guarantor is promising to pay your rent, in addition to all of their own expenses.
Find a sublet: Landlords may be more flexible if you're a subletter, especially if you're only staying for a short period of time. In some situations, a landlord may allow a current tenant to take you in as a roommate. In this situation, the current renter you're moving in with is likely still on the hook for the total rent if you don't pay. Make sure you set ground rules with your roommate and set expectations for rental payments from the start.
Look for private landlords: Landlords renting out a room, garage apartment, basement, or an entire unit may be more willing to overlook your lack of income. These situations usually require some networking and a current relationship with the landlord.
Compile personal and professional references: If you manage to score an apartment without income, your landlord will likely need additional security. Start compiling glowing personal and professional connections that can speak to your character, earning power, and reliability.
Pay more upfront: Landlords willing to look the other way over income verification may also need more rent upfront. Whether it's a more extensive security deposit or multiple months of rent in advance, your landlord may say yes if the extra money is worth the risk.
Remember that landlords and property managers want high-quality tenants that set them up for long-term financial stability. Put yourself in their shoes and make the process as smooth as possible. Extra documentation, references, professionalism, and patience will go a long way in securing your next lease.