• Proof of income is needed to confirm that a borrower makes enough money to repay a loan.
  • Common forms of proof of income include pay stubs, tax return documents, and bank statements. Paperless verification methods are also available to provide more accurate and efficient income data collection.
  • Specific proof of income requirements can vary from one lender to the next.

Are you looking to secure a home loan with favorable financial terms? You may be surprised to learn how much proof of income impacts future mortgage options.

Providing full and accurate proof of income information to a mortgage lender can result in a smoother loan funding process, making your home purchase more exciting and less stressful.

In this article, you’ll learn:

  • What proof of income is,
  • Why proof of income matters for homebuyers, 
  • Which documents can be used as proof of income, 
  • How paperless verifications can save time, and
  • How to prepare income-related documents for your mortgage application.

What Is Proof of Income?

Proof of income is documentation that confirms how much money you make. Take pay stubs, for example. Employees receive these statements of earnings from their employers. These documents can show how much income the employee earned for a given period.  

How Is Proof of Income Used?

Proof of income is often used in conjunction with additional information to determine a borrower’s ability to repay a loan. For example, if you borrow money to buy a car, the lender wants assurance that you make enough money to repay the new auto loan in addition to other debt payments and living expenses.

Of course, proof of income isn’t just for auto loans. It is used for many loan types and lines of credit, including personal loans, HELOCs (home equity lines of credit), home equity loans, and primary mortgage loans. 

Why Proof of Income Matters for Homebuyers

Buying a home is a significant financial milestone. Homeownership allows you to build equity in an appreciable asset, which can improve financial stability over the long term. However, for many homebuyers, homeownership also means taking on a substantial amount of debt in the form of a mortgage loan. 

While buying a home can be a good way to build wealth,[1] the idea of taking on so much debt can make buyers nervous. That’s why it’s so important to make sure you earn enough money to comfortably cover the new home loan along with all other financial obligations.

By showing how much you earn, proof of income can help you feel confident in the decision to allocate a percentage of income to a mortgage payment. Just as importantly, the information can show a lender how much you make so they can determine if you’re a good candidate for a loan and under what loan terms.   

Debt-to-Income (DTI) Ratio

To understand how your income affects your ability to afford a home, existing debt should also be considered. Those with high levels of existing debt, for example, would need to earn more than those with little existing debt to cover the same mortgage payment. 

This is why lenders look at debt-to-income (DTI) ratios. DTI measures how much of a borrower's income is allocated to cover debt payments. The lower the DTI, the less one’s income is being used for debt payments. 

To calculate DTI, simply divide monthly income before taxes, based on proof of income, by monthly debt payments. 

Impact on Mortgage Approval and Interest Rates

Income is an important factor that lenders consider when deciding whether you qualify for a home loan, particularly as it pertains to DTI. As a general rule of thumb, many mortgage lenders prefer that homebuyers have a DTI of less than 36%, with the mortgage accounting for no more than 28% of income.[2]

But proof of income doesn’t just determine whether you can be approved for a home loan. It can also play a part in determining the mortgage interest rate the lender can offer. 

Higher income, combined with lower debts, give borrowers a lower DTI. All other factors being equal, borrowers with a lower DTI can potentially qualify for a lower interest rate than those with a higher DTI. 

How Lenders Verify Employment and Income

Just the way buying a home is a big financial move for you, lending money to homebuyers is a big financial commitment for lenders. They must conduct due diligence to confirm your income and employment to protect their investment in you. They do this through processes called verification of income (VOI) and verification of employment (VOE). 

How VOI and VOE Works

The VOI and VOE processes can vary by lender but typically involve verifying income and employment information through secure online platforms.

With VOI, for example, the lender may ask a borrower to approve an Express Income Verification (https://www.irs.gov/individuals/income-verification-express-service) through the IRS. This would give the lender authorization to check the borrower’s tax return information directly with the IRS rather than relying on digital copies provided by the borrower (which can be manipulated with software programs). VOI can save borrowers time by reducing the amount of paperwork (digital or hardcopy) that borrowers are required to locate and submit. 

VOE often involves contacting employers directly to confirm that the borrower is currently employed in the same capacity and at the same pay rate, as evidenced in the proof of income documents. This verification process can continue until the home loan is funded and the purchase is complete. This means it is extremely important to retain your current employment through the closing date of the new home. Any change in employment could result in a full re-evaluation of your financials.

Common Forms of Proof of Income for Homebuyers

Individual borrowers earn income from different sources — there is no one-size-fits-all requirement for proof of income. The proof of income you provide to a mortgage lender will depend on your source(s) of income.   

Acceptable proof of income documents include the following:

  • Paperless Verification of Income. Lenders may accept paperless VOI as a substitute for the traditional proof of income documents that comprise the rest of this list.
  • Pay stubs. Employees can get copies of their pay stubs (also called earnings statements) from their employers. 
  • W-2 forms. Each year, employers should generate W-2 forms to confirm how much each employee made during the most recent tax year.  
  • 1099 forms. These annual tax forms show miscellaneous income. For example, freelancers and other independent contractors often receive 1099 forms to show income earned from the business that hired them. 1099s are also used to show dividend and interest income.  
  • Tax returns. Tax returns show an individual's taxable income for a given year. This information is often pulled from W-2 and/or 1099 forms.  
  • Bank statements. Bank statements can be a supporting document to confirm that pay stubs or W2 forms are correct. They can also confirm direct payments for freelancers and any interest income generated by the bank account. 
  • Investment account statements. In addition to showing that you have financial assets, investment account statements list any dividend and interest income generated by the account. 
  • Alimony or child support judgments. If you receive income from alimony or child support and you choose to disclose it in your credit application, you can provide the court judgment outlining the compensation agreement. You may need to back up this document with bank statements or canceled checks to show that the payments are actually being received. 
  • Social Security award letters. Social Security award letters confirm that an application for benefits has been approved and that you will receive compensation. 
  • Signed leases for rental properties. If you own real estate investment properties, signed leases can show expected income. However, you may need to support this document with bank statements showing receipt of the income. 

In many cases, mortgage loan applicants must provide multiple documents as proof of income. It’s quite common for lenders to request additional financial information to verify the information originally reported.[3] For example, an employee with a paystub may be asked to provide bank statements and tax returns to confirm that the amount is generally consistent over time.   

Review PNC Bank’s Mortgage Application Checklist for a list of documentation needed to apply for a home loan. 

Special Considerations for Self-Employed Individuals

Self-employed individuals earn money from business activity rather than hourly wages or annual salaries. Their proof of income requirements may include additional documentation, such as the following: 

  • Completed tax returns
  • Profit and loss statements 
  • Balance sheets

Preparing Your Proof of Income for a Mortgage Application

Here are seven quick tips for preparing your proof of income to apply for a home loan:

  1. Check document requirements by lender. Requirements can vary from one lender to the next.
  2. Inquire about paperless verification. Your lender may be able to pull your income records from your employer and/or the IRS with your permission. 
  3. Plan to provide statements for multiple periods. As one example, to show consistent income, you may need two months of pay stubs or two years of tax returns.
  4. Gather necessary documents early. Even before shopping for homes, you can submit an application to be pre-approved for a home loan. Pre-approval can help set a realistic budget and show sellers that you’re a serious, qualified buyer. 
  5. Submit all pages, including those marked “intentionally left blank.” Lenders need to get the full picture, which means viewing all pages to avoid missing any details.
  6. Provide accurate information. Falsifying documents or hiding information can result in the denial of a home loan application. 
  7. Provide any new documents as received. It often takes a month or longer to close on a home purchase, so you may need to provide new statements, pay stubs, or tax documents as received during this period. 

Mortgage Assistance from the Experts

Proof of income is crucial for confirming a homebuyer’s ability to repay a mortgage loan. Accurate income information can help buyers feel more confident in their decision to purchase a home. It can also help lenders correctly assess risk so they can offer appropriate mortgage loan terms to the buyer. 

Whether you’re ready to apply for a home loan now or simply want to see how much you can be pre-approved to borrow, the mortgage loan experts at PNC Bank can help. Through our convenient service center, you can call us, start a mortgage application online, or request a call from one of our helpful loan specialists.