Follow These Steps To Prove Your Income When Seeking a Property Loan (Even if You're Self-Employed)

Owning property is one of most Americans’ biggest dreams. But whether it’s a home or an investment in real estate, a property purchase doesn’t come cheap. Therefore, most folks work with a bank or lender for a loan to buy the property.

Proof of income is among the various things that banks and other lenders will need to see before they can consider you eligible for most big loans, including mortgages. It helps the lender to verify the applicant’s income and to assess their ability to make repayments on time.

Whether you’re employed or self-employed, read on to find out how to provide income proof and increase your chances of getting approved for a property loan.

Common Proof of Income Documents

Proving income usually involves supplying the lender with verifiable documentation that serves as evidence of your earnings. Several different proof of income documents exist, but the most common ones include pay stubs, employment letters, bank statements, and tax documents. The most appropriate document to use in proving your income may depend on whether you are a salary-earning employee or you are self-employed.

Proving Income When Employed 

Whether you’re buying your first home or thinking of getting started in real estate, buying property is a good way to reward yourself for your hard work. Below are some ways to prove income as an employee when seeking a property loan.

Use Your Pay Stubs 

If your employer provides you with a pay stub each month, you may already have all you need to prove your income. Most pay stubs will show your gross and net earnings, how you received after deductions, and when you were paid. It’s good to have at least 3-6 of the most recent pay stubs at arm’s length when approaching the bank.

Employment Letter/Contract 

Especially if pay stubs are absent, your employment letter could also serve as proof of income. This may have to be accompanied by another letter from the employer, verifying that indeed you are a current staff member at the company, earning X amount each week/month.

You may also accompany this with a W-2 tax statement if you file your income tax returns annually. Alongside other particulars, the document basically shows how much was paid in tax withholdings by your employer for the year and can also prove income.

Proving Income When Self-Employed 

If you are self-employed, pay stubs may or may not be an option for you. However, there are various ways to prove your income as a self-employed person. Some of these include:

Bank Statements

Bank statements contain a lot of valuable information about your earnings. From the deposits you’ve made yourself to deposited checks, money transfers, and direct credits from clients, a bank statement can paint a picture to any bank or lender of your current income and outgoings.

Annual Tax Returns and Forms 

When applying for a home loan or any other loan, most lenders will require a company or individual to have at least 3 years of tax returns. These annual returns are also a great way to prove income. And if you're an independent contractor, you can use form 1099-NECs as they basically report any payments above $600 that were made to you by clients over the year.

P&L Statements 

Finally, profit and loss statements can also be an instrumental way to reveal your earnings to a lender. The P&L statement show the overall revenue for the year and whether you made a profit or a loss. Having this documentation may also position you as a focused and organized self-employed individual or business.

And Voila! Now that you know how to prove your income, go ahead and get that property loan. Don’t forget to shop around for the best mortgage deals and choose your lender wisely.