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Why Landlords Take Pay Stubs For Rental Applications
When granting tenancy for a property, landlords want to be confident. A potential tenant should be capable of meeting his monthly obligation. That’s why pay stubs for rental applications are so common. They are among the best ways to prove income.
The fundamental knowledge that landlords need can be found in a pay stub. That information can go a long way in influencing their decision.
In this informative piece, the full guide that every tenant needs is covered. You’ll learn all you need to know about using pay stubs for rental applications.
Why Are Pay Stubs for Rental Applications Important?
A pay stub shows the details of the employee's salary. It's the pay they receive for a particular period. These documents serve as proof of the remunerations individuals earn. They show gross salary, taxes, insurance, pension, and deductions. Pay stubs are important rental application documents. They show the capability of a tenant to pay the rent.
Pay stubs benefit landlords in the sense that they show reliable income. They provide the most reliable current and steady income source. Bank statements or tax returns might provide information on past earnings.
Pay stubs highlight the most recent and current employment history. This is important because they want timely rent payments. In the real estate industry, rent should not exceed 30% of gross income. Pay stubs help them calculate this easily.
How Many Pay Stubs Do Landlords Typically Require?
Landlords and property management firms usually require clients to provide the last two to three paycheck stubs. This standard practice enables them to check that their incomes are steady. It also confirms that they are in stable employment. Multiple pay stubs give the history of the employee’s wages rather than information on a specific pay. This allows for more proof that the applicant is financially responsible.
Contracts with property managers may list some conditions. An example is that the applicant needs to have been at their current job for at least six months. This is because they want to have proof of steady income.
There are some places where competition is high or when the property is of a higher class. Sometimes, the landlord might ask for even more rental application documents.
Timing has a role to play when presenting pay stubs in the tenant income verification process. If possible, the documents should be recent and not more than 30-60 days old. Using old pay stubs can make the recipient doubt your current employment and current income.
If you are paid on a biweekly basis, submitting two recent check stubs will capture one month's pay. In the case of a monthly cycle, two stubs would mean that you gave a history of two months' pay.
What Do Landlords Look for on Pay Stubs?
Pay stubs cover information that landlords need to determine the finances of an applicant. Some of them are:
Personal Details
Firstly, they confirm the name of the applicant and the identity details. They check if it matches the details provided in the rental application. This simple check helps ensure that the pay stubs presented by the applicant are not fake.
Gross Income
Landlords pay keen attention to the gross income figures. Those numbers show whether the tenant has the income for the property or not. Among the usual standards, the most frequent one is the 30 percent rule. For this, rent should not exceed 30 percent of one's monthly gross income.
YTD Totals
YTD’s total earnings are valuable for showing the continuity of employment throughout the year. This cumulative figure allows the landlords to determine if the applicant has had a constant income for the whole year. They can see if the person has fluctuating incomes in the pay stub.
Employment Details
Pay stubs have employment details, including the name and location of the company where an individual works. It also comes with contact details, like the phone number and address. These details enable landlords to confirm the employment if there is a need to do that. Most landlords can make inquiries with the employers to confirm income status, as well.
Pay Period
This information shows when the tenant is paid. This assists the landlord in comprehending the tenant's cash flow. A person may be paid weekly, biweekly, or monthly. The pay period impacts how the person will be managing their cash. This, in turn, impacts how they schedule their rent payments.
Deductions
Deductions and withholdings give important information about the duties of an applicant. Large deductions or some unusual garnishments may appear on the pay stub. These can suggest that the borrower is in financially strained circumstances. This might affect their ability to pay for rent.
Alternative Documents When You Don't Have Pay Stubs
Not everyone is privileged to have conventional pay stubs. For example, self-employed persons, freelancers, contractors, and those with other sources of income. Luckily, landlords do allow other documents for tenant income verification:
Tax Returns
Individuals' financial data in terms of annual income are completed on Form 1040 and its schedules. Self-employed people use them as the official proof of their income. Most landlords ask for income tax returns for the last two years. They do this in an attempt to establish consistency in income.
Bank Statements
Bank statements are a good option as much as the frequency of deposits matches the stated income. In most cases, landlords demand statements for the last two to three months. They want to ensure the tenant's continuous income is reliable.
Employment Letter
A letter of employment is especially useful for newly employed applicants. Usually, most of them have not been issued several pay stubs. The letters should be written on the company letterhead. They should contain details, such as salary, position, and the date of joining.
Profit and Loss Statements
This can be useful to show the business income of self-employed applicants. Profit and loss statements should be made and certified by an accountant. It can be accompanied by bank statements corresponding to such deposits. This makes the documents highly useful for tenant income verification.
Benefits or Court Documents
Some applicants may be recipients of some government benefits or court-awarded settlements. They need to show benefit statements or court documents as proof of income. Most landlords recognize such steady incomes in the eligibility criteria.
Common Verification Methods Used by Landlords
There are several methods that landlord use to check if the pay stubs provided by their clients are genuine:
Direct Employer Verification
Direct employer verification entails contacting the employer directly. Landlords try to get different contact details from the one on the applicant’s pay stub. They can check public records. This ensures they contact the right people and verify income.
Third-party Verification Services
Outsourcing the verification to third-party verification services is another method. It has gained the attention of property managers in recent times. These services can access necessary databases to verify employment information.
In larger property management companies, the verification goes a step further. The systems are automated, and they are directly linked to payroll providers. This makes the process easier while ensuring the safety of sensitive data.
Cross-referencing
Applicants submit many rental application documents during the process. These include tax documents, pay stubs, and more. Landlords can compare the information on these different documents. Any discrepancies detected in such documents give a warning sign to the screening process.
Screening Services
Some landlords employ tenant screening services. They offer background checks that entail tenant income verification. These services can access employment databases to verify the information.
To Sum It Up
Pay stubs for rental applications are preferred for many reasons. Mainly, they are relevant to the current income capability of an applicant. Tenants need to know what landlords are looking for in such documents. This makes applications for tenancy easier. For landlords, proper screening of the potential tenant helps avoid any complications. They avoid any issues leading to late payment or even eviction. It helps create a positive and fruitful lease for both parties.
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