What is the most effective method to verify a borrower's rental income?

Obtaining copies of the borrower's tax forms, including Schedule E, is the most effective method to verify a borrower's rental income because Schedule E provides a detailed breakdown of income and expenses related to rental properties. It shows actual amounts that the borrower reports to the IRS, reflecting their true rental income over the previous tax year. This documentation is standard practice in the underwriting process, as it helps lenders assess the borrower's income stability and reliability accurately.

While reviewing leases can provide insight into potential income from a rental property, leases alone do not confirm actual income received, especially if there are gaps in occupancy or if the rental amounts are not reflective of current market conditions.

Reviewing data on average rental rates in the area can offer context for what similar properties might earn, but it does not provide specific information about the borrower's actual earnings or financial situation.

Confirming rental payments through two months of bank statements offers a short-term view of income but may not be representative of the borrower’s ongoing rental income, particularly if payment histories are inconsistent or if the borrower has multiple properties.

Thus, using Schedule E is the most reliable way to verify a borrower's rental income because it provides a comprehensive record of reported income and associated deductions, enabling a more accurate assessment