If you are buying a house, renting an apartment or applying for a bank loan, you would probably realise that they all require you to submit an income document. But what exactly are income documents?
Income documents are necessary for banks, financial institutions, landlords, and many other entities. The amount you earn can determine many things, from your insurance plan to the amount you receive for a personal or mortgage loan.
However, deciding what counts as an income document can be confusing. In this article, we’ll discuss what income documents can serve as proof of income for different types of employment.
What Is An Income Document?
An income document is a form of documentation which verifies an individual’s income and employment status.
Why Do You Need An Income Document?
If you have rented an apartment or applied for a loan before, you’ll know that these are some situations when it’s necessary to demonstrate your proof of income.
Another situation where you would need to provide your income document is when you are buying a house. You would need to show your proof of income to get pre-qualified or pre-approved for a bank loan.
This is advantageous for you as getting pre-approved for a loan increases your negotiating power to get the best interest rate possible. Income documents are also helpful to show that you have a steady income and can make monthly bank instalments on time.
Lenders, such as banks and financial institutions, have different criteria in terms of credit scores, down payments, and debt-to-income ratios. However, one similarity they share is that you must prepare your income documents to serve as proof.
Types of Income and their Income Documents
Different types of employment have different wages and income documents. Understanding the different types of income is beneficial to ensure that you submit the right documents during any application process.
The 2 most common income types are:
1. Stable Income
A stable job is often a position with a consistent schedule and income and is a role that employees can hold for a long time.
For example, an individual can work for the same company or maintain a career in a stable field for many years.
Income documents from your employer can give the most up-to-date picture of your income since they include any changes in your wages from the past year. Examples of income documents include:
- EPF statement
- Bank statement
- Income tax forms
- Tax receipt
2. Fluctuating Income
Fluctuating income refers to income that varies because of intermittent income, bonuses, commissions, overtime or other seasonal employment. Business entities and jobs that fall under this category include:
- Private limited companies (Sdn Bhd)
- Part-time jobs (not all salaries can be considered for proof of income)
- Full commission earner
- Basic and commission earner
If you are an independent contractor and freelancer, your income documents are different from those with a stable income. Examples of income documents for people with fluctuating income include:
- Employment verification letter
- Bank statements
- Income tax forms
Can You Refinance Without Income Verification?
If you want to apply for a refinancing loan, you must provide proof of income. This is because your lender will look at the income documents you’ve provided to verify that you have a stable income to make your mortgage payments.
However, if you’re self-employed or rely on commissions, there are other ways you can obtain funds to refinance your home.
1. Get A No Documentation Loan
A no documentation loan is a home loan that doesn’t require standard income documents for approval. It is often granted to individuals who do not have a regular source of income, including those who are self-employed.
The lender allows the borrower to use other documents, such as bank statements, to show that they can repay a mortgage.
Below are four common requirements for no documentation loan:
- Have Good Credit
- No documentation loan programmes generally require a higher credit score than a regular loan with income documents.
- Make A Large Down Payment
- The minimum down payment on no documentation loans usually starts at 20%.
- Higher Interest Rates
- Lenders will charge higher interest rates compared to a regular mortgage as you will not be providing documentation.
- Prove You Can Repay The Loan
- Whether it’s bank deposit statements, the income you receive from renting out your properties or a large stockpile of assets, lenders need proof you have the resources to make monthly payments on your loan.
2. Look For A Co-Signer
Unfortunately, not everyone has a financial record that is good enough to obtain a refinancing loan.
However, these people can seek a co-signer for help. It could be a family member, friend or someone the applicant knows who is willing to be liable if the applicant is unable to pay the rent.
The process for applying for a loan with a co-signer is similar to when you apply for one yourself. The only difference is that the lender will also assess the co-signer’s financial health and records before granting the loan.
3. Ask to Restructure Your Loan
For financially stressed individuals, loan restructuring can be helpful. It is used by businesses and individuals to prevent defaulting on their current debts by negotiating reduced interest rates.
Plus, loan restructuring benefits both the creditor and the debtor. The debtor will be able to avoid bankruptcy, while the creditor will receive more than they would have compared to their debtor going bankrupt.
However, take note that once the adjustment is made, your CCRIS will have a ‘C’ or ‘T’ remark and would potentially affect your future loan applications.
How Bluebricks Can Help You
Even if your income documents are in order, a small change to your income could affect your loan application.
If you need help preparing your income documents, we provide consultation services with customised guidance for each customer based on their personal circumstances. This ensures that our customers are provided with the most viable options before proceeding with the loan submission process.
Comprehensive Loan Rejected Services
Bluebricks offers comprehensive loan rejected services to meet the demands of our clients from various backgrounds.
Suppose your bank denied your housing loan application. In that case, our experienced team can help identify the reasons you were rejected and come up with a strategy to improve your application. We will also resubmit your application for you.
Discover how our housing loan rejected services can get your loan application approved.
Income Documents – FAQs
As you can see, many documents can serve as proof of income. Navigating the loan application process can be tricky, especially when determining what counts as an income document.
To make your loan application process easier for you, we have compiled 3 popular questions about income and income documents in Malaysia.
1. Can a bank statement serve as an income document?
Third-party evidence is the most reliable way to prove your income. Your bank statements record all of your incoming deposits, including payroll deposits and the checks and debits coming out of your account.
2. What happens if I do not report self-employment income?
Not reporting cash income or payments received can lead to hefty fines and penalties; worse, you could end up in jail. Getting your tax situation straightened out as soon as possible is important, even if you are years behind.
3. Do banks check my income when applying for credit cards?
Yes, they do. Credit card issuers must consider your ability to repay your credit card debt before extending a new line of credit. Therefore, listing your annual income is a requirement on all credit card applications.