Tenant Screening Process - Verifying Income

Confirming Financial Stability

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As a landlord, you are looking for a tenant who will pay their rent on time every month. Unfortunately, prospective tenants can write whatever they want on a rental application. During the tenant screening process, it is up to you to actually verify that the information they have provided is accurate. Learn three steps to verify a prospective tenant’s income.

Verifying Prospective Tenant's Income- 3 Steps

  1. Request Income Documentation
  2. Issue an Employment Verification Request.
  3. Run a Credit Check.

1. Request Income Documentation

The first part of verifying a prospective tenant’s income is to request the appropriate documentation from them. The type of documentation you will need will differ depending on if the prospective tenant has an employer or is self-employed.

Documentation for Tenants With Employers:

  • Paystubs:
    • Request paystubs from the last two or three months to see if the tenant's pay fluctuates and to verify that they have been employed for a period of time
    • This paystub will list the pay begin and end date, so you can use it to determine the tenant’s weekly, monthly and yearly income.
    • This paystub will list both the gross and net (after taxes) income for the applicant.
    • It should also list their year to date earnings.
  • W2s:
    • As an additional protection, you should ask for copies of the applicant's W2 form.
    • This will show how much income they declared for the previous tax year.
    • It will allow you to see they have had a stable income for the past year.

Documentation for Tenants Who Are Self-Employed

  • Bank Statements:
    Self-employed tenants will not have an actual paystub, so the best thing you can do is request copies of their bank statements to verify they have actual income coming in.
  • You should request bank statements from the past two or three months to get a better picture of their average monthly income.
  • File Form 4506 With the IRS:
    Some landlords are hesitant to rent to self-employed tenants because of difficulty verifying their income.
  • You can require that self employed tenants submit Form 4506 to the IRS, which is a request to receive a copy of the tenant’s federal tax records.
  • Unfortunately, it can take up to 60 days to process this request, and most landlords cannot wait this long to fill a vacancy.
  • The cost is also an issue, as it is $57 to receive this copy.
  • File Form 4506-T Instead
    A quicker and cheaper (free!) option is to file form 4506-T, which is a request for a transcript of the tenant’s tax returns.
  • This usually only takes one business day to receive and will contain the vital information you are looking for.

2. Issue an Employment Verification Request

For prospective tenants who are not self-employed, there is an additional step you can take. You can contact their employer to confirm they work there. To do this, you need to contact the employer directly and issue an employment verification request. This is to ensure the applicant does, in fact, work there and to verify the income claim they made.

3. Run a Credit Check

Running a credit check on a prospective tenant will give you information about their financial health. This credit check will show you if they have been able to fulfill all of their financial obligations. You will learn:

  • Their credit score.
  • How much debt they have.
  • If they have ever filed for bankruptcy.
  • If they have any judgments against them.
  • If they have ever been evicted.

Debt to Income Ratio

It is particularly useful to compare the prospective tenant’s total debt to their income, which is called their debt to income ratio. If they are making $40,000 a year but have $40,000 in debt, they could have difficulty fulfilling their monthly mortgage payment.

Past Employers

While a credit report does not list a person’s current or previous employers, it does show who has run a credit check on the individual. Employers will often run a credit check on an applicant before hiring him or her. The credit check may show you a list of employers who have also checked this tenant’s credit recently, although it does not mean they actually hired the applicant. You would have to look further and contact the employer directly to determine the companies where the tenant was actually employed.