How Can You Verify the Income and Employment History of an Applicant?

Ask for documents that match how the applicant is paid, then confirm the key figures with the source, using a signed authorization from the applicant. For an employee that means recent pay stubs plus a check with the employer; for a self-employed applicant, tax returns and bank statements; for benefits or a housing voucher, the paying agency's letter. Set one written income standard, such as gross monthly income of 3 times the rent, and apply it to every applicant, after checking your state: Colorado caps the standard at 2 times the rent, and California, Colorado, and Washington apply it only to the share of rent a voucher holder pays.

Which documents prove income for each type of applicant?

Ask every applicant for the same set of documents for their income type, and say on your application which documents you accept.

For an applicant who files Schedule C, measure that business's income as net profit after business expenses (the net profit line on Schedule C), not gross receipts, so your figure reflects what is available for rent.

An IRS tax return transcript is a summary of the return as the IRS processed it. The applicant can view and download one from their IRS Individual Online Account, or order one by mail to arrive in 5 to 10 calendar days. Compare the income and expense figures you rely on, including Schedule C entries, with the corresponding transcript entries; matching adjusted gross income alone does not verify the rest of the return.

For a voucher holder, the housing agency pays its share, called the housing assistance payment, directly to you. HUD says the tenant's share is usually 30% of the household's adjusted monthly income. The share depends on the unit's rent, so ask the caseworker for the figure for your unit before you apply your income test.

How do you confirm income directly with the applicant's consent?

Documents can be edited, so confirm the figures that drive your decision with the person or agency that pays the applicant.

1. Get written permission first. Put a signed authorization in your rental application form that lets you contact current and past employers, the applicant's bank, and any agency paying benefits.
2. Find the contact yourself. Look up the employer's main number on its website or in a directory instead of calling the number the applicant wrote down, then ask for human resources or payroll.
3. Ask the questions the employer can answer. Confirm start date, job title, whether the job is full-time, and current pay. An employer may confirm only dates and title, or may send you to a verification service.
4. Know what a verification service is. The CFPB lists The Work Number, run by Equifax Workforce Solutions, as a consumer reporting company that supplies employment and income data collected from employers and payroll processors. A verification you buy from a service like this is a consumer report, so the federal Fair Credit Reporting Act (FCRA) rules for landlords apply: use it only for the rental decision, and give an adverse action notice if it contributes to a denial or to tougher terms.
5. Cross-check the paperwork. Match the net pay on recent pay stubs to deposits on the applicant's bank statements, and check that the employer name and year-to-date totals are consistent across stubs.
6. Record what you verified. Note who you spoke with, the date, and what was confirmed for each applicant, and keep the file with the application.

For employment history, the same steps apply to a prior employer. Ask how long the applicant worked there and whether the applicant is eligible for rehire if the employer will say.

How do you set and apply an income-to-rent standard?

An income-to-rent standard compares the applicant's gross monthly income (income before taxes) to the monthly rent. Write down four things before you advertise: the ratio, which income counts (wages, net self-employment income, benefits, support payments), whether savings can substitute for income, and whether you combine incomes for co-applicants.

Worked example for a unit renting at $1,800 a month:

• A 3 times rent standard requires $1,800 x 3 = $5,400 a month, or $64,800 a year.
• A 2.5 times standard requires $1,800 x 2.5 = $4,500 a month.
• In Colorado, the most you can require is 2 times the rent: $1,800 x 2 = $3,600 a month, or $43,200 a year.

Income is not a protected class under the federal Fair Housing Act, which covers race, color, religion, sex, familial status, national origin, and disability. Uniform treatment alone does not make a denial lawful. The Fair Housing Act also requires reasonable disability-related accommodations in screening policies and document requirements when necessary for equal access to housing. Asking some applicants for extra proof, or bending the ratio for others, can become evidence of unlawful discrimination in your application process.

When an applicant falls short, you may offer the same options to everyone in that position, such as a cosigner or a larger deposit within your state's deposit limit. Income is one factor alongside credit and rental history; see what a credit report shows about an applicant for how debt payments affect the picture.

Where do source-of-income laws limit your standard?

Federal law does not protect source of income, but many state and local laws do. These laws usually bar refusing an applicant because the rent will be paid partly with a voucher or because income comes from benefits, and some change how you apply your income test.

Example: the rent is $1,800, the voucher pays $1,350, and the tenant pays $450. A 3 times standard on the full rent would require $5,400 a month. In California or Washington, the same standard applies to $450, so the applicant needs $1,350 a month. In Colorado, the most you can require is 2 times $450, or $900 a month.

Cities and counties can add their own protections, so check your local fair housing ordinance as well as state law before you print an income requirement in a listing. For how income fits with the other traits landlords screen for, see what qualities make a good tenant.