The Pros and Cons of Renting to a Tenant with a Co-Signer
A Co-Signer Requires Extra Paperwork and Comes with Risk
You require a rental application to fill your vacant apartment. An applicant may ask if you accept co-signers. A co-signer is a person who will not live in the apartment, but guarantees that the rent will get paid if the applicant/tenant fails to do so. A co-signer is also guaranteeing that if there are any damages or unpaid rent above and beyond the amount of the security deposit, and the tenant fails to pay for them, the co-signer will make those payments. A landlord does not have to agree to a cosigner. As a landlord or manager, whichever decision you make, to accept or not accept a co-signer, the policy should be made part of your tenant selection plan.
This is a big financial and legal responsibility, usually accepted by a parent(s) or guardian(s) for a child just out of college. The parent wants the young person to have his or her own apartment, and understands that he or she may not have a sufficient employment or credit history at the time. By signing a co-signer agreement, the parent agrees to put his/her own credit and finances on the line for the child. This is a risk that should be emphasized to the parent(s) or guardian before they sign your lease.
A co-signer adds an additional party to your lease. If the applicant is accepted as your tenant, both the co-signer and the applicant will have to sign a lease addendum. You and the applicant agree to accept the co-signer as part of the lease, and the co-signer agrees to be responsible for the tenant’s unpaid bills. As stated before, the co-signor is also agreeing to cover any damages that need to be paid above the security deposit. The co-signor is also responsible for any negative behavior of the child.
Your burden as a building owner or manager, if something goes wrong, is to pursue both the tenant and the co-signer if you are owed money. In some states, if the tenant files for bankruptcy, the co-signer can still be liable for the unpaid rent and/or damages. Check with your real estate attorney for more details regarding this law.
If an applicant has no credit history because of his or her age, a co-signer would be in order. Neither you nor the applicant knows how rent will be handled each month. The co-signer would then be a good back-up person to contact for each month the rent isn’t paid. At the same time, if the applicant has a poor credit history, you already know he/she is an irresponsible person where bills are concerned. Rather than agree to a co-signer, you have the right to reject this applicant as a tenant.
- The co-signer must agree to be in compliance with your tenant selection policies: have good income, good credit, and enough employment income to pay the tenant's rent. Why have a co-signer who is in the same or worse financial shape as your applicant?
- The co-signer should reside in the same state as your home. If you have to pursue the co-signer for your unpaid rent, you do not want to have to cross state lines to get your money;
- A co-signer should be responsible for the entire term of the lease;
- A co-signer should ideally be a family member, or someone who cares what happens to the applicant and would pay to prevent the tenant from the nonpayment of rent eviction process;
- Consider a co-signer for a roommate who is financially weak, thereby allowing both roommates to be eligible for the apartment, all other applicant information considered;
- A co-signer is only a financial back-up person. He/she does not have any rights to the apartment, such as keys, name on the mailbox, etc.
- If you send an apartment termination letter to the tenant, a copy must also be sent to the co-signer. The co-signer should be made aware of the financial or other termination situations that are about to happen.
You need to make it clear that the tenant is responsible for the monthly rent, and should make all rent payments. The co-signer should only pay the rent if the tenant does not. The rent is supposed to be paid during the entire lease period, even if the tenant has moved out and did not arrange for another person to take his/her place. Check your state laws or your attorney on what would happen if the co-signer makes every rent payment. You may not want to establish a new tenancy by accepting regular co-signer payments.
This is an excerpt from the author’s book, “How to Pick the Best Tenant.”
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