A critical part of securing the perfect apartment is making sure you’re in the right place financially to sign on the dotted line. Apartment complexes and landlords will often run credit and background checks and require proof of income before you’re presented with the final lease. By learning about your employment history and knowing that you can afford your place, the landlord can feel more confident that you will make monthly payments on time and in full. A typical annual income requirement is that you have to earn 40 times your monthly rent, so, for an $800 a month rental you have to prove an income of $32,000. For a new graduate without a stack of pay stubs to prove income, or if your income falls short, your future landlord may require a co-signer (also referred to as a guarantor) to complete the process.
What is a co-signer?
Essentially, a co-signer is someone who puts their name on your lease and assumes financial responsibility for the apartment in the event that you don’t pay your rent. They’re also called guarantors, because they legally “guarantee” that the landlord will receive payment; if not from you, then from them.
The landlord will also want to make sure that a co-signer has sufficient income to cover their personal expenses plus your rent, if it comes to that. Therefore, a landlord will typically require the co-signer to show income of at least 80 times your monthly rent, so, for that same $800 a month apartment, a co-signer must earn at least $64,000. Becoming a co-signer to a lease (or any legal document, for that matter) is a heavy responsibility, but co-signing requirement isn’t uncommon, especially in first apartments. A co-signer is typically a parent or another close family member or friend.
Asking for someone to become a co-signer to your lease is a very delicate task, as your co-signer takes on significant financial risk. This person will also have to have provide their confidential income and financial information to the landlord, and often in the process make it known to you, so even your family members may be reluctant to do it.
Pro Tip: As an alternative, your your landlord may forego the co-signer requirement if you can provide a few months of extra security deposit. Your potential co-signer might prefer to lend you money for that extra security, so they do not have to reveal their personal financials.
When do you need one?
If you have no credit history, poor credit history, or no proof of income, your landlord will most likely require a guarantor. For people moving into their first apartment, this is often the case as you may not have much credit history, and may be just starting a job.
What’s their obligation?
As long as you pay your rent on time, a co-signer has no obligations. However, if you don’t pay your rent, your co-signer or guarantor becomes responsible for paying your rent to your landlord. If neither of you pays, the landlord can sue both of you. They do not necessarily live in the apartment with you, but “vouch” for your ability to pay rent.
Pro Tip: You may also negotiate with your landlord to remove the guarantor after a certain amount of time, thus removing their responsibility for your rent.
So, what’s the deal?
In the case we’ve discussed, a co-signer or guarantor is generally a formality to help people with little credit history obtain their first apartment. If you’re considering moving out on your own, don’t plan to rely on your co-signer to pay your rent, ever. You absolutely must have the means to pay your monthly rent and other bills each month; your guarantor should just help you get the lease.