There are a few boxes a tenant needs to tick off along the way to renting an apartment, and they might need some help ticking those boxes. After a tenant has discovered "the one," their next step is to submit an application and hope that it is granted, but what if it isn't?
As an example, if there's a first-time renter with no credit or a long-term renter with no job security, and they cannot be approved for a new apartment right away just because they're missing a few marks, they shouldn't worry: if they don't have enough financial proof to satisfy the property manager or landlord, they still have options.
If a tenant is unable to obtain a lease on their own, the property manager or landlord (you) may recommend that they obtain a guarantor to sign the lease with them. Now wait, what exactly is a guarantor, and how can they assist?
What Is a Guarantor?
Guarantor is another term for a cosigner, and a guarantor is someone who agrees to be legally liable for paying the rent as specified in the lease, but only if the renter is unable to pay for some reason. A guarantor ensures payment - pretty straightforward, right? The guarantor signs the lease with the renter and guarantees that rent can be paid if the tenant fails to pay.
Guarantor vs. Co-signer
A co-signer is a person whose name appears on the lease and who also lives on the premises. Continue reading to find out what the difference between a guarantor and a co-signer is.
What is a guarantor? Guarantors are similar to co-signers in that they are financially responsible for the rent if the tenant fails to pay. Unlike co-signers, guarantors do not live at the location and serve as "insurance" if the tenant is unable to pay the rent.
Co-signers are frequently spouses or roommates, whereas guarantors are typically parents or elderly family members who are financially capable of backing up a tenant on their lease.
When Does a Tenant Need a Guarantor?
If a tenant has terrible credit or no credit, a guarantor can almost certainly be necessary if they want to get the flat. You may also ask your tenant for one if they do not earn 40 times their monthly rent on an annual basis, implying that they do not earn enough money.
Additionally, if they fall just short of the qualification norms, or even if they meet them, but something in their profile raises suspicions, you may request for a guarantor. This can range from an old collection on their credit score to changes in their income or year-to-year income fluctuations.
Young persons with no credit or short credit history, the self-employed, and foreign nationals with no credit report are the most common people who find themselves in this predicament.
If a tenant gets paid annually or quarterly, it can hinder their ability to find a property quickly. However, if they have poor credit, it isn't an indication that they should give up.
How to Find a Guarantor?
Asking one's parents for a guarantor is a fairly common method of obtaining one. It might not be ideal, but it's the most prevalent case for newer renters looking for a guarantee.
Close friends or family members can also help, but the tenant must be comfortable asking them to accept financial responsibility for their rent if they fall behind on payments. That's a lot to ask, so they should be sure before approaching someone for a cash favor.
Though parents are the most likely option, it's still a good idea for the tenant to explain to the possible guarantor why they can trust him/her not to default on rent payments. In this circumstance, the tenant needs a guarantor just to give you (the property manager or landlord) peace of mind and that you can get their rent payment one way or another. However, that doesn't mean that they may default on their rent.
A potential guarantor should be financially secure, responsible, and reliable (while also having a good credit score). If a tenant knows someone like this with whom they have a good relationship, it's in their best interest to ask them.
These guarantors are also required to sign papers, provide evidence of income, and meet other standards. The tenant must just make sure that they're willing to be as steady, responsible, and trustworthy as possible when promising their guarantor that they are always going to pay their rent on time.
What Credit Score Does a Guarantor Need?
A tenant's credit report can be verified, and their guarantor is required to submit proof of income. In this way, the guarantor is simultaneously applying for the same property. The guarantor must have good or exceptional credit, but they are most likely required to have credit in the excellent category, which is anyone with a score of 750 or higher.
Because each landlord or management firm has its own set of requirements, a tenant must make a note of them on the application.
If the tenant has good credit history at this point and they know their credit score, it may put a worried guarantor at rest. The majority of people with good to exceptional credit cannot risk destroying their credit by simply not paying their bills. Because a guarantor is aware of this information, this should relieve part of the burden.
A tenant's rental payments are now factored into the most recent FICO model (FICO 9). It could either assist or hinder them, depending on their spending patterns. This is fantastic news for someone who has bad credit but pays their rent on time.
What Requirements Does a Guarantor Need to Meet to Qualify?
In order to sign an original copy of the lease, landlords in New York City normally only accept guarantors who live in the city or the nearby Tri-state area. If this isn't the case, as it is for many students, international employees, and low-income individuals, an institutional guarantor may be required.
Financial entities ready to undertake the financial liability of the lease agreement in exchange for a fee are known as institutional guarantors. To serve as a guarantor, these institutions normally require lower incomes and credit ratings.
While the criteria vary by building, guarantors are frequently expected to earn 80 to 100 times the monthly apartment for which they are seeking. Your guarantor must provide the same documents that tenants do: two pay stubs, two bank statements, tax returns, and a letter of employment. A certified public accountant can submit an income statement if they are self-employed or operate a business.
Once guarantors sign on, they are accountable for any unpaid rent, and the landlord is not required to notify them immediately if their monthly checks stop coming in.
Does the Guarantor Need to Be Put on the Lease?
Yes. The guarantor is on the lease because they are vouching for the tenant, albeit with a unique lease rider confirming their involvement. A tenant might not realize it, but their guarantor is obliged to sign the same lease.
The guarantor is held legally responsible for the outcome of their payments (or lack thereof) if they sign the lease. When the guarantor is out of state or lives abroad, this can be a problem.
Some landlords or management organizations may allow the guarantor to sign electronically.
The majority of the time, though, a physical signature is required. This makes it more difficult to have the lease or a separate rider express mailed and the guarantor's signature verified and returned. Signing the lease is the ultimate moment of truth, for many guarantors,
Even parents have been known to back out of lease signings if they don't like the roommates, the apartment, or aren't confident in their child's ability to be responsible.
Who Can Be a Guarantor?
When it comes to someone with bad or unstable credit, co-signing can be problematic. A tenant should get the help of family members or close friends who know them well and trust them to be a guarantor. However, make sure that a guarantor meets the following requirements:
- Is a family member or a close friend
- Doesn't have the same bank account as the tenant
- Is over the age of 21
- Has a good credit rating
- Is financially stable
- Is a property owner (Not mandatory, but it can add credibility)
Landlords and property managers are more likely to approve applications from guarantors who live close to prospective tenants because they know it is easier to recover cash from them if the tenant fails to pay.
What Does a Guarantor Need to Provide?
- a copy of a government-issued photo ID like a driver's license or passport
- copies of the last two years' tax returns
- Pay stubs from the most recent pay period
- a copy of the last two monthly bank statements
- A letter of employment detailing the salary, position, and length of employment is required
The tenant and their guarantor both need to complete an application and pay an application fee. This cost might range from $25 to $200, depending on the brokerage, management firm, or landlord.
This additional charge for the guarantor can typically range from $50 to $100, and in certain cases can double. This price is rarely the same for both the applicant and the guarantor.
You can ask a tenant for letters of recommendation from coworkers or friends, as well as a letter from their existing landlord.
Furthermore, you may ask a tenant to provide you with only the most recent documents or the last two or three of any given set of documents.
Being a guarantor is a major commitment, so it's best if a guarantor is somebody whom the tenant knows or someone they can trust.
It entails a lot of paperwork, a hefty fee, a harsh knock on their credit, and taking the time to sign the lease.
If a tenant lets a guarantor down by not paying the monthly rent, they may never be interested in helping them again.
This is because people value their credit and don't want to risk their financial security by dealing with someone who doesn't pay their debts.