How To Properly Verify The Income For Your Loan Application
Applying for a loan is a tedious and complicated process. There is a lot of paperwork you should be aware of to avoid getting rejected. Lenders tend to ask for several documents to ensure that you will be able to repay the loan you take, so they won’t lose their investment. One of the most important factors in deciding whether to provide you with a loan is proof of income. While it sounds easy to prove your income, it can be tricky, and it can cost you the loan you desperately want to buy your new house or car. You can verify your income by following these tips.
Tax Returns
Information on your financial situation is extremely essential for your lender to assess to calculate whether you are a good candidate to receive a loan. The lender will request to get a copy of your tax returns, and you can permit them to do that by signing the 4506-T form at the IRS. The lenders want to check one to two years of your tax returns to ensure that your proof of income is consistent with your annual income. You will be rejected if there are significant fluctuations between the two reports.
Banks Statements and Other Assets
Lenders ask for a bank statement and other assets in the process of assessing your risk profile. These assets may include your investment assets such as a rental house and any insurances you might have, including health and life insurance. The bank statements and other assets documents prove that you have reserve loan payments in your account for several months if there is an emergency. Additionally, the bank statement proves that your down payment has been in your account for a certain amount of time and that it appeared out of nowhere before applying for a loan.
Credit History
Your credit history is essential in the decision-making process, as lenders access it after your written or verbal permission. Any blemishes such as a foreclosure or a short sale on your credit history can make lenders reluctant to give you a loan. However, if you prepared written statements explaining why you have these blemishes, the lenders may overlook them. Your risk profile will be affected considerably when lenders know if these blemishes were a one-time incident or a regular habit.
Signed Letter From Your Employer
Providing a letter from your employer to the lender stating that you work for them and stating your salary is proof of income that lenders accept. The salary will show the lenders that you are capable of paying loan payments, and at the same time, the letter works as a reference to verify that you actually work for that employer.
Pay Stubs
If you receive a regular paycheck by working either a full-time or a part-time job, you can have pay stubs as proof of income. Pay stubs, also known as a payslip or paycheck stubs, show how much money you have earned within a certain time period. They also show how much money was deducted from your salary for insurance, taxes, and investments. Getting pay stubs is easy, you can read more here, or contact your employer to give you pay stubs for the last year, for example. Pay stubs work similarly to signed letters from employers, as lenders can call your employer to verify the information on the pay stubs.
Payroll Schedule or Documents
If you work with a contractor or do freelance jobs, you can verify your income by providing your lender with a payroll schedule. This document will show the lender your future payments to ensure that you will be able to repay the loan. The payroll schedule is valid when you have irregular payments.
Self-Employment Proof of Income
Tax returns are one of the ways lenders check to see if you are eligible for a loan. Additionally, they will ask you to bring them a profit-and-loss statement for at least two years to gauge how well your business is doing. They will calculate your average income and divide it by 24 to get how much money on average you make per month. If your profit-and-loss statement is stable or rising, it will raise your chances to get the loan.
Gift Letter
If you have received a huge amount of money that you are planning to use as a down payment, you need to document how you acquired it. If someone close to you, such as your parents, gave you this money, you need to get a gift letter from them stating that this is a gift, and you are not obligated to pay it back. However, you must have a steady income proving you can repay your loan payments for the foreseen future.
Bill of Sale
Similar to gift letters, a bill of sale is another proof of obtaining a large amount of money that you can give to your lender. If you sold your car or any other asset you own, keep the bill of sale to prove how you got that amount of money. It is essential to verify your down payment, so the lender will know the money is yours and not a shady financial arrangement. Also, similar to gift letters, you must have proof of steady income to cover the loan payments for their duration.
Renting History
If you have been renting an apartment or a house for a long period of time, the lender may ask for canceled rent checks for the past year. You can also ask your landlord to give you documentation of your renting history. Paying rent in time will show the lender that you will repay the payments regularly.
Proof of income is the major factor in deciding whether you will get a loan or not. After all, the lender must ensure that their investment will be repaid in time. There are several ways to acquire proof of income, and if you manage to get more than one proof, the better your chances to acquire the loan. The little details are important to lenders, and you shouldn’t overlook them, so make sure your documents are detailed.
