July 25, 2023 • 6 min read
You wouldn’t hire someone for an important job without verifying they have the degree or experience required for the position. Similarly, you shouldn’t lease out your valuable properties to tenants without verifying they can pay what you’re charging for rent.
As much as you may agree with the above sentiments, you may wonder how to effectively verify an applicant's income. It can be a daunting task with a lot of moving pieces, and if you get it wrong, you might just end up with a tenant who can’t afford to pay.
In this post, we'll provide some tips and tricks to help you effectively verify the income of your prospective tenants. By the end of this post, you'll have the tools to verify income and confidently make informed tenant screening and leasing decisions.
Before we provide details on the specifics leasing agents need to know about income verification, let’s start with a basic understanding: what is income verification?
Income verification is a vital step in the leasing process that allows leasing agents to ensure that potential tenants have the financial means to afford the rent on their property. In addition, taking measures to verify income enables property managers to make an informed decision about their renters, mitigating the risk of late or missed rental payments.
During income verification, a property manager completes several tasks to confirm an applicant’s financial status. Some of the documentation you may request during this process include:
The documents should prove that the applicant has sufficient income to pay for the property. In addition, they should confirm their employment status matches the status they listed on their rental application.
Reviewing the documentation provided manually is time-consuming and may result in errors. Instead, you can use specialized software solutions to flag inconsistencies or suspicious information. Investing in a software solution like Intellirent can help you streamline the income verification process by automatically cross-referencing the information applicants provide with various databases.
Verifying income is crucial to your leasing process because it provides property managers a clear understanding of the applicant's financial situation. To reduce the risk of delinquency in rental payments, you need to implement robust income verification processes for your properties.
Ultimately, income verification is a proactive measure that safeguards your interests while setting your renters up for success in their ability to afford the property you offer. Property managers can maintain a stable rental income and foster a positive rental experience for all parties involved by ensuring renters can afford the rent.
Property managers must first remember fair housing laws when verifying income. These laws are in place to prevent discrimination against applicants based on their income source.
For example, rejecting applicants solely because they receive public assistance, such as Section 8 housing vouchers, is illegal.
It's essential to treat all applicants fairly and evaluate their ability to pay rent based on their overall financial situation rather than base decisions purely on income sources. By adhering to fair housing laws, you can ensure a fair and inclusive rental process while avoiding potential legal issues.
Similarly to fair housing laws, you should also ensure that you are not simply considering applicants with standard employment. It can be tempting to show preference to applicants with traditional jobs that provide regular pay stubs, but applicants with other income sources can still be reliable renters.
Some strong applicants may be self-employed, work on commission, or have income from investments or rental properties of their own. Unfortunately, these types of income don’t supply pay stubs, so to accurately verify their income, you'll need to adapt your approach.
Request appropriate documentation and take the time to review and validate their income from these alternative sources. By considering all legitimate sources of income, you can ensure that you pay attention to potentially qualified applicants who may be excellent renters.
When assessing an applicant's financial suitability for a rental property, you must consider more than just their income. Another critical piece of the puzzle is the applicant’s credit history.
Credit history provides valuable insights into an applicant's financial responsibility and payment patterns. While a less-than-perfect credit history doesn't necessarily mean an applicant will be a bad tenant, assessing their financial track record is essential to make an informed decision.
Look for the following to identify potential risks:
Considering credit history as part of the income verification process allows you to better evaluate an applicant's overall financial stability and their likelihood of paying rent on time.
Another important factor to consider during income verification is the income-to-rent ratio of each applicant. This ratio represents the proportion of an applicant's income that would need to go toward rent if you approve them for your property. This figure helps determine if the applicant's income can afford the rental property comfortably.
As a general guideline, the rent should not exceed 30% of the applicant's income. However, remember that this ratio may vary based on location and the applicant's overall financial obligations. By understanding and applying income-to-rent ratios, you can ensure that tenants have a good financial capacity to afford the rent without struggling to pay for their other essentials.
If there’s one thing the income verification process is full of, it’s documentation. You will need to have a process to organize the substantial amount of pay stubs, credit reports, and bank statements you will collect during your income verifications.
It is essential to keep all verification documentation well-organized and appropriately secured to maintain efficiency for your business and the security of your applicants’ information. This organization will enable you to easily access the information when needed and maintain the privacy and confidentiality of the applicant's personal and financial details. Consider using a secure digital storage system or an application like Intellirent that allows for easy retrieval and protection of sensitive documents.
Intellirent can also automatically flag suspicious or inconsistent information uncovered during verification. Our color-coded system is easy to read, with red flags for deal-breaking information and yellow flags for items you’ll want to take a second look at or discuss with your applicants.
Clear and effective communication with applicants during the income verification process will reduce your headaches and increase trust between you and your applicants. What information do you need to communicate to applicants?
Additionally, it can be beneficial to explain to applicants how income verification will be used to determine their eligibility for the property can help manage expectations and minimize potential misunderstandings or disputes.
A third-party verification tool can be a game-changer for property managers looking to step up their application and income verification processes. These services streamline the verification process and ensure accuracy in assessing an applicant's financial situation.
One tool you’ll want to consider for your property management needs is Intellirent, which offers comprehensive verification services for property managers.
Intellirent provides a detailed report on the applicant's income and employment status. However, that’s only the beginning. Intellirent also assists with credit and criminal background checks. In addition, with our proprietary SmartMatch tool, you can approve high-quality renters within hours rather than days, filling your vacancies with approved renters more quickly and efficiently than with any other tool or process.
Understanding income verification is a crucial part of your journey to becoming a profitable and successful leasing agent. Armed with this understanding, you should be able to quickly set up the proper processes to verify your tenants’ income.
However, income verification is only one piece of the puzzle regarding owning a rental property. To streamline and simplify your rental processes, you’ll need a tool to help with income verification, background checks, and more.
Intellirent is an all-in-one leasing toolkit that helps you fill vacancies with best-fit tenants quickly and easily.
To see how Intellirent can help you, schedule a free product tour today!
July 25, 2023