Certain scenarios require you to prove what you earn. This could be to secure further financial support from institutions, such as bank loans and credit cards, or to secure housing for the next step in your life. There are a few simple ways to prepare the evidence you will need to make the whole process as easy as possible.
The reason proof of income is important is that lenders, including landlords and mortgage providers, use it to verify your financial stability and assess whether you can meet your obligations to make payments. Essentially, your credibility is reviewed by your chosen lender before they can give you a decision on your request.
This can be a stressful time, so we’ve created a handy cheat sheet for you, explaining the most common ways that you can prove your income in these situations, and outlining why this is important.
The best way to prove your income is through bank statements and payslips
Providing evidence of your income and capital is a very common request for a lender to assess your proof of income. In simple terms, what they’re most often looking for is recent bank statements and current payslips. Your records must be current, and usually, you are asked to provide up to the last three months of data for assessment.
Additionally, some applications will also require you to provide an employment verification letter: you’re demonstrating that your payslips and the employment letter are linked and that this is the job you are detailing the regular income from. A formal job offer letter is a sufficient document to prove your employment, just ensure that there is a date on it, as this details how long you’ve been employed there.
In the modern technological age, these documents are incredibly easy to secure. Your mobile banking app will be able to produce PDF versions of your monthly bank statements, and it is very likely that your employer also produces a PDF version of your payslip (which is also called a pay stub) when they run the payroll.
If your bank or employer does not regularly provide these documents to you as a PDF, you can request them from an administrator. Most people will find it easy enough to walk into the local branch of their bank and ask a teller to print their most recent monthly statements, but these can sometimes also be organised over the phone as well. To request evidence of what your employer pays you, you should speak to the finance department and request the detailed documents for your records.
Self-employed people need different documents to prove affordability
Things are slightly different for self-employed people. As you don’t have a job offer letter or even regular payslips, you will be required to prove that your variable income isn’t a barrier to your affordability with the lender. Two of the best documents with which to do this are your most recent tax returns and profit & loss statements. Both of these document types are widely accepted as proof of income due to the timeframes with which they cover, demonstrating your financial stability.
As your tax returns are official documents filed with government revenue agencies, these are the most widely accepted proof of income documents for self-employed people. A tax return provides an extremely detailed overview of your current financial situation, showing a full year’s worth of data to any institution or lender that requires evidence of your financial status.
If you are required to provide a second document, provide your business’s profit and loss statements over the set period you’re being assessed, in the same way that you would provide payslips if you had been employed elsewhere. So, let’s say you need to provide three months’ evidence of pay. In this case, you should submit a profit and loss summary of the last financial quarter, detailing the business’s monthly revenue, expenses and the resulting net profit or loss. This document gives a lender a picture of your current financial stability, whereas a tax return reflects the previous financial year.
Housing affordability checks need more detailed documents
We must talk in a little more detail about housing affordability. Whether you’re having to prove your income to a mortgage provider or a landlord, you will need to build an even bigger picture than for other application processes. In these situations, it is much more common to be asked to provide evidence of three to six months’ worth of data to assess your current financial status. Typically, a landlord checks that the rental cost is only around 30% of your monthly income, although recent British studies now show that the cost of living increases means that the average tenant spends 40% of their income on rent.
Lenders are looking for a steady income, not just your current affordability. You may find that even though you may have been employed at a higher financial status for three months, that may not be sufficient for a lender to review this as a higher level of affordability. In the case of self-employed individuals, this may mean you need to provide at least two years’ worth of tax returns as part of the application process, and in some instances, a guarantor may also still be requested as a backup for the lender to approve the application.
Keeping your documents up-to-date is the easiest way to prove your income
Ultimately, the biggest takeaway here is that providing proof of income is an extremely common procedure. Keeping your documents up-to-date makes this whole process easier and is the best way for you to be quickly prepared for any eventuality.
The simplest way to summarise the reasoning for these documents is to understand that you’re trying to present a transparently clear financial picture to any institution or individual who is requesting such information. They’re requesting an accurate reflection of your capability to meet the required payments, both with your current earnings and the access you may have to capital long-term.
Whether you’re taking out a loan or a credit card, or you’re making an application for a mortgage or a rental property, by providing your proof of income, you are showing the lender that you have the resources to support your application and that you have financial security to be trusted in this next phase of your life. Now, you have all the information you need to be prepared at any given moment to prove your income.