How to Read an Income Report from The Closing Docs
An automated income verification report from The Closing Docs enables property managers to securely and quickly interpret an applicant’s net income using verified bank data. No more fumbling through pay stubs, tax returns or W-2s, our automated income verification report will not only expedite the application process for screeners and applicants alike, it provides the most up to date info available and with just a few keystrokes. Increased speed and accuracy improves the experience for everyone.
The article below helps explain our individual and combined income report, and points out key elements of the report.
Individual Income Report
The individual income report displays a single applicant’s deposit history over the prior year.
1. Report Header
The top of the income report states the individual applicant’s full name and the date the report was created.
If you include the property’s monthly rent when originating the income verification request, the applicant’s net income to rent multiplier is calculated using recurring net income from the past 3 months. The calculated Net Income to Rent Multiplier is then compared to your Net Income to Rent Multiplier Threshold. This threshold is customizable within your settings. The default approval threshold is 2.5x net income to rent.
If an applicant or an applicant group meets the minimum threshold for this multiplier based on your business rules, the report will state that the applicants are above your threshold and display a green bar as a visual cue that basic income requirements have been met. In the event the applicant or applicant group does not meet the minimum threshold, the report will state that the applicants are below your threshold and display a red bar instead. A red bar across the top of the report is an indicator to the screener that further investigation is warranted.
To learn more about the benefits of relying on net income over gross income, click here.
2. Net Income Summary
The Net Income Summary aggregates applicant deposit data to show net income by categories, including recurring, non-recurring, and total income. Each category is described below.
Recurring Income is classified as deposits that have similar time periods between each deposit.
Non-Recurring Income are one-time deposits, or deposits that have variable time periods between each deposit.
For example, deposits coming from the same source consistently 14 days apart for 3 months would resemble an income stream derived from payroll and are classified as recurring income. On the other hand, 2 deposits made 1 month apart, and then another deposit 2 weeks later, and then another deposit 3 months later shows an inconsistent time period between deposits, and would be classified as non-recurring income accordingly. The amount deposited does not determine whether an income stream is recurring or not.
The Total Income is the sum of the recurring and non-recurring income.
We give calculations for recurring, non-recurring, and total income within a certain time frame to give you insight on the applicant’s income over time.
The Total - 12 months time period is the total amount of income that the applicant has made during the entire time span of the report. Our income report generally includes 12-months worth of data. However, some banking institutions restrict the time frame according to their business policies. In any case, the report summary indicates the period covered.
To learn more about our income data availability, click here.
The Past 3-month Average and Past 12-month Average show the monthly average of the past 3 months and the past 12 months individually, illustrating the applicant’s net income over time. For example, if the applicant got laid off 6 months ago, this information would reveal a difference when comparing the Past 3-month Average with the Past 12-month Average.
3. Account Balances Summary
The Account Balances Summary shows the applicant’s current, available, and average balances and account holder name for each checking and savings accounts within a given financial institution.
The average balance is the average of the account’s balance over the entire report’s time period. This is useful to see if the applicant has been living paycheck to paycheck, or has a steady balance in reserve.
The account holder name allows you to verify that the account connected belongs to the applicant. If the account holder data matches the applicant’s name, the applicant owns the account. If not, we recommend following up with the applicant to discuss and confirm account holder status.
4. Net Income Sources
The Net Income Sources section lists all recurring and non-recurring income sources, along with the income source’s total amount of income within the report’s time period, monthly income, start date, end date, and institution. These sources are sorted by the total amount per source.
5. Summary Section Divider
A divider separates the high-level summary of the report from the supporting data. All the information above the divider represents the primary information used to support decision making. Below the divider, info representing secondary details appears. These figures are used to calculate the high-level summary, including individual deposit details.
6. Recurring Income Sources Breakdown
Each recurring income source is broken down by individual deposits in order to back-up the calculated figures from the period collected. The transaction list will include the name of the deposit, the amount, and the date deposited.
7. Pay Gaps
If an applicant takes a break from their recurring income stream, and then starts employment again, we highlight the gap. Learn more about pay gaps here.
8. Non-Recurring Income Sources Breakdown
Deposits that do not qualify as recurring deposits are included in this section. This category will include cash pay deposited by the applicant, one-time bonuses, commission-based income, infrequent deposits like tax refunds, and transfers from external accounts such as Venmo and PayPal.
Combined Income Report
The combined income report aggregates multiple applicant’s deposit history to produce an income report for the entire household. This report is used to learn the household’s capacity to pay rent, as opposed to that of an individual applicant.
By attaching two or more applicants to an income screening, you can create a combined income report.
1. Report Header
Our combined report aggregates the financial data of multiple applicants. Each applicant that is represented in the report is shown on the top header.
2. Combined Net Income Summary
The Combined Net Income Summary uses all of the applicant group’s income data to produce the recurring, non-recurring, and total income calculations, similar to the individual income report.
3. Included Bank Accounts
When more than one bank account is included in the income report, the Included Bank Accounts section is shown. This section shows the date range that is covered by each financial institution. Banking institutions generally include 12-months worth of data. However, some banking institutions restrict the time frame according to their business policies. In any case, this section indicates the period covered per institution.
4. Individual Net Income Summary
Below the overall summary are the individual summaries for each applicant. This breakdown allows you to analyze an individual’s financial health independently from the overall household.