Is Taking on Lease Cosigner Responsibilities Right for Me?
Renting an apartment is an exciting but potentially overwhelming new adventure. But what happens if your child, friend, relative, or acquaintance does not quite meet the minimum screening qualifications. In that case, they may ask you to be a cosigner. While this can seem like an automatic yes for some, individuals must understand their obligations. Lease cosigner responsibilities are just as important as the tenant. That said, continue reading below to help determine if this is the best decision for you.
What is a Lease Cosigner?
A lease cosigner is any third-party individual who agrees to fulfill the financial or legal obligations under the lease if the lessee is unable to do so. However, the lease cosigner responsibilities do not end there. In short, if the tenant fails to pay the rent or damages the unit, landlords can then seek payment from the cosigner.
Therefore, before becoming a cosigner, it is imperative to consider your own finances or willingness to accept such a commitment. In addition, most landlords expect cosigners to go through a similar application and qualification process as the tenant.
Are Cosigners and Guarantors the Same?
The terms cosigner and guarantor are often used interchangeably. However, they are not precisely the same. For example, a guarantor must assume responsibility for the rent if a tenant fails to do so. That said, a guarantor cannot occupy the property even if they must step in to cover payments.
A cosigner signs the lease right along with a tenant. Therefore, they assume legal and financial lease obligations from the onset, just as the tenant does. Thus, cosigners have a right to occupy the property in addition to their other lease cosigner responsibilities. Although, more commonly, a cosigner is a friend or family member who does not actually live with the tenant.
Why Would a Tenant May Need a Cosigner?
Renting an apartment is a substantial financial commitment for tenants. That said, landlords will screen applicants based on criteria such as income, credit history, rental history, and job stability. That said, there are plenty of circumstances where a tenant may not meet one or some of these criteria. When that occurs, the tenant may need to seek the help of a cosigner to secure the lease. Check out some of these common reasons to have a cosigner below.
- Lack of Sufficient Income
- Insufficient Rental History
- Questionable or Unestablished Credit History
Lack of Sufficient Income
An essential part of the screening process is to assess the applicant’s income level and income source. As a general rule, tenants should not spend greater than 30% of their gross income on rent payments. Doing so may lead to issues covering expenses or an inability to pay on time consistently. So, if the applicant meets other requirements but does not have sufficient income, adding a cosigner can help. A few examples of situations where cosigners are acceptable for insufficient income include –
- The tenant is a student only working part-time while taking classes
- An applicant is bouncing back after a divorce or pandemic related hardship
- A tenant just started a new job after relocating to the area
Insufficient Rental History
Past behavior is often a good predictor of future behavior. Therefore, landlords use past rental history as a vital way to evaluate potential tenants. But what happens if this is an applicant’s first apartment? Perhaps the tenant is a student just striking out on their own. Not having previous rental history is not an automatic denial if the applicant meets other criteria. So, this is a good time for a cosigner to step in and bolster the applicant’s chances of being approved.
Questionable or Unestablished Credit History
If income is the tenant’s ability to pay, credit history can demonstrate their willingness to fulfill financial obligations. Thus, landlords will always perform a credit check on all applicants. However, similarly to a lack of rental history, there are times when an applicant will lack credit history. Young adults, for example, will likely not have the financial history to build sufficient credit and, therefore, may need a cosigner.
Understanding Lease Cosigner Responsibilities
Lease cosigner responsibilities are just the same as the tenant. That said, it is not a decision to take lightly. So, before signing on the dotted line, consider the following lease cosigner responsibilities below.
A Cosigner is Liable If …
- The tenant breaks the lease without sufficient notice
- Unpaid damages or rent remains after the tenant vacates
Also, keep in mind if the tenant has roommates, a cosigner is responsible for the lease in its entirety. So, cosigners agree to fulfill all financial obligations of the lease, regardless of who is at fault for non-payment.
The Requirements to be a Lease Cosigner
For several reasons, not everyone is cut out to handle lease cosigner responsibilities. Like any applicant, cosigners are subject to strict qualification criteria before being approved as a financial backer. This screening, while extensive, is necessary to ensure the cosigner can fulfill their own obligations in addition to the lease terms if needed. That said, typical requirements include but are not limited to –
- Complete a rental application and pay any applicable application or screening fees
- Undergo a full credit history check
- Provide proof of steady employment
- Submit a complete financial history
- Show proof of income equal to or greater than six times the monthly rent
What to Consider Before Signing Up for Lease Cosigner Responsibilities
Even if an individual qualifies as a cosigner, it does not make it the right decision. After all, if the tenant fails to uphold their contract, cosigners must immediately make the landlord whole. So, if something happens and you cannot pay as the cosigner, you too will be in default and subject to legal action. These circumstances can affect not only your finances but your credit score as well. Thus, causing potential hassle if you need to get a loan or rent your apartment. With that in mind, here are some points to consider before taking on lease cosigner responsibilities.
- How well do you know the applicant?
- Do you have a consistent and good relationship with the tenant?
- Are you confident in their life and financial choices?
- Do they have a stable source of income?
- Is the rental amount something the applicant can afford comfortably?
- Will their inability to pay cause excessive stress, bitterness, or resentment in your relationship?
- Are my finances stable enough to take on lease cosigner responsibilities?
Becoming a cosigner takes practical consideration and a great deal of confidence in the applicant. That said, individuals should never feel pressured, obligated, or guilted into cosigning on a lease. Always keep in mind that the responsibility is significant and carries potentially long-lasting consequences.
Mitigating Risk in a Rental Property
When faced with the opportunity, deciding to take on lease cosigner responsibilities is up to the individual. However, the important thing is to consider the risk carefully along with potential consequences. For many landlords, offering a cosigner option only applies to applicants who already show good qualities. In other words, reputable landlords view cosigners as simply an added layer of protection.
At Bay Management Group, we understand the challenges and decisions facing tenants, cosigners, and property owners when finding the right fit for a property. Our comprehensive screening policies ensure that tenants and cosigners are fully vetted and are held responsible for their obligations. To see our latest rental listings in your area or to inquire about our property management services, check us out online.