What Is A Guarantor On A Lease?

What Is A Guarantor On A Lease?
What Is A Guarantor On A Lease?

If you have bad or no credit history, it is clear that you need to get a guarantor to get an apartment. This is where you see the relevance of what is a guarantor on a lease.

Another situation where you might be asked for this is when you don’t earn 40 times your monthly rent annually, meaning you don’t earn enough money.

Sometimes you may be asked for a guarantor if you are just shy of meeting the qualification standards, or even if you meet them but something in your profile is questionable.

What Is A Guarantor On A Lease?

A guarantor on a lease is the person who signs the lease together with the prospective tenant.  They agree to pay rent if the tenant fails to do so at any time during the lease term. 

Because rental guarantors take on a lot of financial responsibility for a prospective tenant, guarantors are often parents, friends or family members, especially if the prospective tenant was previously one of their dependents.

Note that guarantors and co-signers are sometimes referred to interchangeably because they both have the same responsibilities to tenants. 

Like guarantors, co-signers must also pay rent if the tenants of the property do not.  In essence, rental guarantors provide landlords with a bit of financial peace of mind.

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Why Would You Need A Guarantor On A Lease?

A guarantor on a lease is just a bit of security for landlords who don’t want to let their property to tenants who may not be as reliable as they appear.

In every case, the potential tenant is not as ideal a tenant as the landlord would like.  But a rental guarantor allows a landlord to approve tenants like these individuals without taking on too much individual risk.

There are other options that landlords can use, such as charging a much higher security deposit or requiring the first and last month’s rent to be paid in advance.  But the best way to guarantee consistent rental income is usually to have a co-signer or guarantor.

A cosigner or guarantor is always legally obligated to pay the rent instead of the tenant.  In the case of a delinquent tenant, landlords can count on steady income instead of settling for an above-average lump sum in the form of a security deposit or last month’s rent.

ALSO CHECK: MODIFIED GROSS LEASE: Definition and All You Need To Know

What If I Do Not Have A Qualified Guarantor On A Lease?

A guarantor can really be anyone willing to guarantee your lease.  That being said, due to the delicate nature of the situation, this may not be appropriate for a casual acquaintance, although it may be in the cards if he/she trusts you.

For this reason, most guarantors are parents or close relatives, guardians or other significant others.  It is less likely to be friends, colleagues, boss or extended family.

Foreign nationals can either find a relative living in the States who meets the financial requirements, or use the services of a third party such as The Guarantors or Insurent.

Landlords usually ask that your guarantor be in-state or local, but increasingly landlords are accepting out-of-state guarantors.

If your foreign guarantor can demonstrate good US credit and proof of US funds or income, chances are you’ll be fine. However, having a guarantor abroad can create a problem when signing the lease.

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What Is The Credit Score Requirement Of A Guarantor On A Lease?

You and your guarantor will check your creditworthiness and provide proof of income.  In this sense, the guarantor claims the same apartment at the same time.

A guarantor must have good or excellent credit, but more often than not they will be required to have a credit history in the excellent range, i.e. 750 and above. Every landlord or management company is different, so pay attention to the requirements in the application.

At this point, if you have good credit, a nervous guarantor can be reassured by knowing your credit score if they fear you’ll miss a payment. Most people with good or excellent credit will not risk ruining their credit simply by defaulting on their bills.

So your guarantor, knowing this about you, will take some of the pressure off.  The latest FICO model (FICO 9) now takes your rent payments into account.  Depending on your financial habits, this can either hurt you or help you.

ALSO CHECK: LEASEHOLD ESTATE: Definition, Types, Examples & How To Create One

What Is A Guarantor On A Lease Agreement?

The guarantor must notarize the signed document, if he cannot sign the contract and present the receipts in the presence of the lessor or the rental company. 

Also note that if the tenant’s lease is changed, the guarantor must be asked to sign a new, revised lease, even if the tenant has already agreed to the change. 

The guarantor has the right to question his obligation to pay if even the smallest clause has been changed since the original lease was signed. 

A big advantage of a guarantee tenancy is that the landlord has the ability to contact a third party to collect further rent or damages if the tenant refuses to pay. 

For this reason, guarantors must make informed decisions when signing a tenant – just as wisely as landlords must during the tenant selection process. 

No matter where you live, homeowners want cosigners and guarantors to have excellent credit that demonstrates their financial stability and responsibility. 

Having roommates makes things a little easier, though it doesn’t change the 40 times a month rental rule.

ALSO CHECK: GRADUATED LEASE: Definition & Guide To Commercial Leases

What Is A Guarantor On A Lease Apartment?

The right to an apartment is a test in itself.  In a landlord-driven market where demand outweighs supply, many renters looking for their dream apartment have undoubtedly felt the pain of rejection. 

Qualification standards are strict in most major cities.  Bad (or no) credit, little savings, or a questionable relationship with your previous landlord can prevent you from finding an apartment. 

Fortunately, in the age of financial technology and innovative solutions, getting the apartment you most desire is not necessarily unrealistic.

In many cases, the landlord may require the tenant to provide additional information or perform additional actions before obtaining permission.  Often this means finding a guarantor.

ALSO CHECK: PROPRIETARY LEASE: Definition and How It Works

CONCLUSION

Make sure you understand all your obligations by reading the documents.  Take the time to read and understand them, even if it takes a few days.  Ask the lender to explain terms that are unclear to you.

Under these clauses, you bear the guarantor’s responsibility as if you had borrowed the money yourself.  Therefore, even if the borrower can avoid liability, you will remain liable.

The lender can demand reimbursement from you without proving that they tried to collect the debt from the borrower.  Payment must be made by you when the lender makes the claim. 

As a guarantor, you are responsible for additional costs, court costs and interest if payment is delayed.  Clearly state how the lender can service the demand.  If you are not sure about the content of the claim, contact the creditor quickly.

What Is A Guarantor On A Lease FAQs

Do I Need A Guarantor Or Co-Signer For A Lease Apartment?

Both guarantors and co-signers have legal obligations after signing the lease.  Since these positions involve finances, it is critical that everyone understands their obligations and makes sure everyone is on the same page before signing the lease.  Otherwise, it can damage the relationship and lead to awkward situations.

Who Can Act As Your Guarantor For Leasing?

Family members and close friends are the best option when choosing a guarantor.  If you can’t find a guarantor you know personally, there are services to help.  For example, Insurent is a company that will act as your guarantor under your lease for a fee of approximately 80 percent of the monthly rent.  In order to be approved for this service, you must have good credit and meet lower income requirements than those set by your landlord.

How Does A Guarantor Lease Work?

A guarantor lease works much the same as a regular lease, with the added provision that it includes one or more clauses that specify that the lease guarantor will be on the hook for the tenant if the tenant defaults on rent or other charges on time.

A rental guarantee is often required for building ownership or new tenants because landlords do not want to have too many payment cycles when they are not receiving income from one or more tenants.

References

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