In particular, lenders and landlords are concerned about one’s proof of income before engaging in business with them. Your revenue is a major determining factor about the amount you can get for a personal loan, health insurance, and many other things in your life. Not having proof of how much you can affect your ability to land a lease, travel, or subscribe to some utility services. Read on to learn what you need to know about proof of income and how you can use it.
What is Proof of Income?
Proof of income consists of one or many documents often requested by the lenders or landlords to verify your income. The money you earn is also used to determine your ability to pay when you apply for a loan or when seeking rental accommodation. Different types of documents can be used as proof of revenue, as you are going to see below.
Applying for a Loan
When you want to apply for a loan, the financial institution will look at your proof of income first to determine if you qualify for the money. There are different types of loans that include home, auto, business, health, personal, and others. The lenders are in business, and they do not provide credit to any person without a traceable source of income. Therefore, when you apply for a loan, you must attach proof of income to show if you are capable of repaying the money together with interest. Your income will also determine the type and value of the loan that you will get from different lenders.
Proof of Income Documents
Lenders will ask for different documents to verify your income. Other lenders may request a pay stub together with your federal tax return before they approve your loan. If you are looking to make your own pay stubs, there are different online tools that you can use to determine the type of credit to apply for. The lenders may also request proof of income from your employer to show that you earn some money at the end of each month. Tax documents also act as the most reliable sources of income since these are legal documents. You need to retrieve your tax return when the season ends and keep it in a safe place.
All the copies you use as proof of income should bear the following information:
Your full name
Social security number
Proof of Income for Self-employed Individuals
If you are self-employed, there are different types of documents that you can use as proof of income. However, you should know that it takes a little extra effort to prove your income if you are self-employed. The following can be used as proof of income for people who are self-employed.
Bank Statement- your bank statement helps to prove a steady flow of income if you constantly make deposits. You need to separate your business account from your expenses since this can confuse you.
Profit and Loss Statement- this statement summarizes your expenses, costs, and revenue if you operate a business.
Wage and Tax Statement 1099 for Self-Employed-the 1099 form is a legal document that proves your wages and taxes.
Proof of Income for Tenants
The landlord usually asks for proof of payment for a prospective tenant to verify their ability to pay. It is essential to use a document with steady income like pay stubs together with a bank statement. A proof of income letter is another viable document that you can use to prove your source of money. Your previous year’s tax return form can also work as proof of income. However, you should understand that your landlord may not accept documents reflecting short-term sources of income for fear that your cash flow can suddenly stop and you fail to pay your rent. When preparing your rental application, it is wise to double-check with the landlord to make sure you provide the right documents.
Proof of income plays a crucial role since it affects almost all aspects of your life. If you want to apply for a loan, the lender first considers your income before approving it. On the other hand, the landlords also ask the prospective tenants to produce verifiable proof of income to check their ability to pay. In other words, your income determines your financial status, and it plays a big role in determining the type of loan that you can get. Different types of documents can be used as proof of income, and you should make sure that they contain correct details and they are easily verifiable.