When looking to rent an apartment, there are many items, requirements and processes you must endure before you can even be approved to sign a lease. You may have to encounter a credit check and a background check, as well as produce references, a rental history, vehicle registration and proof of renters insurance. You also may need to pay a check fee, an application fee and a security deposit fee. A lot goes into renting an apartment besides filling out an application.
But one thing you are almost assured of having to provide is proof of income. Income verification has become a standard part of the application process. Landlords require proof that renters will be able to pay and continue to pay monthly rent on time and in full month after month.
So what exactly are income requirements? What is the proper monthly rent-to-income ratio? How much are you expected to pay in monthly rent and how much should you pay in monthly rent? And how do landlords determine their requirements and what proof do they demand?
To protect themselves and the prospective tenant, many landlords and property managers set minimum income requirements needed before a potential tenant can even think about signing a lease agreement.
And there's a reason why this is often the first step in applying for lease approval. If you cannot pay your rent on time, you are probably not going to be approved for a lease. If you cannot show you will be good tenants and make rent payments on time, there's no point in moving forward with the application. Both the landlord and the potential tenants can move on without spending the time or money on things like further application fees and background checks.
Most often, the reason landlords require proof of income is to avoid bad tenants. Not ones that are too loud or make a mess (although they often go hand-in-hand), but potential tenants that won't be able to pay rent. A minimum income requirement ensures that come the first of the month, the proper full rent will be paid. With this requirement, the landlord knows (or at least can speculate well) that rent will be provided on time.
It is not just bad for landlords when tenants cannot pay rent in full. It can also cause difficulty when rent — even if the full amount — is consistently paid late. This can wreak havoc with budgets, savings, interest and the apartment building owners to pay staff, bills and taxes.
When tenants start paying late or not being able to cover the full amount, it can be harmful to the reputation of the property as a good place to live. Other tenants may also feel like they need not pay on time as well. And in the worst-case scenario, a tenant may fall so far behind, they skip out on the lease entirely.
It may seem counterintuitive, but income verification also protects prospective tenants as well. If a renter moves in without the ability to pay in full on time, they put the landlord in a difficult position. The landlord may have no choice but to evict the tenant for nonpayment. At worst, the eviction could follow the renter for the rest of their lives, keeping them from renting again or ruining their credit report score. At worst, the tenant might become unhoused.
And remember, rent is just one expense for renters. Ensuring that the renter can pay each month will also go a long way in assuring the tenant can afford their utilities, groceries and other expenses as well. A renter who can't pay their heat and electricity bills affects everyone.
There is a long-held unwritten rule that says you should be paying around 30 percent of your income towards housing, whether that be rent or mortgage payments. This has been the rule of thumb for a long time as a guide when perusing listings and deciding what is affordable.
But as income verification becomes more common, many landlords have turned to this figure as well. Often, the income requirement is simply proof that a renter's gross income is high enough that 30 percent of it would cover the monthly lease price. This is called the Three Times Monthly Rent rule. Total gross income should be about three times the rent.
Although the 30 percent and Three-Times-Rent rules are popular, they have inherent issues. One of the primary ones is that it does not account well for debt or expenses. Debts, student loans, child support, back taxes and paying for elder care are large expenses that aren't taken into account with just income. Paying 30 percent of your income is great, but if you're also paying just as much for student loans or a mortgage on a business, suddenly 30 percent seems low.
More recently, the 43 Percent Rule has become more popular. The figure takes the Three-Times-Rent ratio multiplier (33 percent in other words) and adds 10 percent. The new 43 percent figure accounts for more variables than the old system. It is also the rule financial institutions use to calculate mortgage payment requirements.
Of course, individual landlords and property managers can set income requirements at whatever level they wish (depending on local regulations). It is not unusual to see income requirements upwards of 50 percent. This can be attributed to factors like high demand, low inventory, inflated lease prices and "consumer culture." This is particularly true in major cities, especially during and post-pandemic.
Sometimes, the income requirements are noted on a brochure or a website, but you won't find out until you are meeting with the landlord for the first time.
The good news is that the minimum income requirement is a per-unit measurement, not per person. If you're married, cohabitating or moving in with a roommate, the minimum income is culled from the combination of both (or more) occupants.
With a second person, each tenant's income level need only be half of the requirement. If the property requires income based on the 43% rule, each occupant only needs to exceed the 21.5% threshold. Having a roommate or partner reduces risk by half. However, if your roommate is not on the lease, it is possible that only the income of the primary leaseholder will count towards the cap. This is a property-by-property decision.
So you have a good job and you know you can afford to spend a third or more of your income on rent. But your landlord doesn't know that, yet. So how do you prove your income to your landlord? What sort of documentation do landlords require as verification?
These are some of the most common ways landlords verify income. They may ask for one of these, several of these, or even all.
While it all seems so simple, it isn't for everyone. Just showing a paycheck from a 40- hour-a-week job isn't feasible for everyone. Gig workers, digital nomads and freelance creatives are among millions with regular income from irregular jobs.
Plus, there are scores of people who are not currently employed or are underemployed but have plenty of income to cover monthly rent. What is the solution for potential renters like these? How to prove a positive rent-to-income ratio when you don't have traditional income?
Of course, income can change over time. Usually for the good, but most often when a job loss occurs. But that's not what income requirements are about. It is a snapshot of your ability to pay at the time of lease application. Any changes would be addressed in your lease, depending on state laws.
To learn more common renter terms, visit our Renter Dictionary.
Michael is a Philadelphia-based writer with a variety of interests, including music, concerts, TV, politics, travel and sports. His background includes a decade as a programming executive in network television, six years as a marketing executive at a technology company, and time at two magazines and two advertising agencies. He currently works as Craft Beer & Brewery contributor for the Visit Philly Greater Philadelphia Tourism Bureau and sits on the board of a non-profit law firm that assists veterans with disabilities. Michael is a proud Syracuse grad (Newhouse) who has lived in Wichita, Albany, Chicago, Washington DC, Boston and beyond.