As a landlord, one of the greatest concerns you might face is nonpayment of rent by tenants or renting to someone who is not financially stable. Living in uncertain and financially challenging times means landlords need the best guarantee for a constant rent flow. Although it’s impossible to predict with certainty who will make the most reliable tenant, tenant screening will give you the best picture of someone’s background and financial history so you can confidently pick the right renter for your property. The most important indicator if a tenant can and will pay rent is an applicant’s credit score.
Running a credit check is essential to reducing any risk of nonpayment – sometimes a cosigner on a lease is needed to protect your rental investment. Below, we will guide you through what a lease cosigner is, the pros and cons of adding a cosigner, and how to add a cosigner to a lease.
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What is a Cosigner?
The term cosigner is defined as someone who jointly signs a loan or a lease with another person to guarantee payment. Most people are familiar with cosigners when it comes to taking out a loan – for example, if someone is young or has had financial troubles, loan companies often require cosigners. In the same way a cosigner takes financial responsibility for a loan, a cosigner on a lease is taking the financial responsibility for paying rent or other charges related to the property if the tenant fails to pay.
Because cosigners are legally accountable for ensuring the rent gets paid, landlords can feel more confident in renting to a particular tenant. Cosigners are oftentimes parents, relatives, or even close friends of a renter.
Why Tenants Might Need a Cosigner
After you run a credit check on a renter, you may discover your prospective renter has a lack of credit history or a poor credit score – you’ll also be able to see collections, bankruptcies, and lines of credit on their screening report.
Renting to tenants who have a low credit score means they could have a history of missing payments, which is usually a red flag. However, sometimes renters are young, such as college students, and might not even have a credit score yet. This is often when a parent or family member would come in as a cosigner on a lease to guarantee the rent as their financial responsibility.
Because credit scores can range, landlords need to determine what their renting criteria will be as some might be okay with more risky acceptance renting criteria than others. Here are general accept-and-decline credit score guidelines:
Pros and Cons of Cosigners
As you debate whether to rent to a specific renter with a cosigner or to choose a different applicant, it’s important to assess the pros of having a cosigner on a lease:
- Protects Your Rental Investment: Having a second-party guarantee the rent will be paid covers your bases with a tenant who has a low credit score.
- Great for College Towns or Young Renters: Cosigners are a great option for rental properties in college towns or places with younger renters as you will have an increased chance of filling your vacancies in these places. Oftentimes, young roommates will each need a cosigner.
- Safer Than Higher Security Deposit: While some people suggest charging a higher security deposit to safeguard your investment from renters with bad credit, sometimes this won’t make up the loss of nonpayment of rent, plus, most states have a cap on how much landlords can charge for a security deposit.
- Doesn’t Safeguard Bad Behavior: Even with a cosigner guaranteeing rent, this doesn’t mean the tenant won’t cause other issues for you whether it’s noise complaints, bad behavior, or other lease violations. For help finding a good tenant, check out our Landlord’s Guide to Screening Criteria!
- Could be More Work: There could be a situation where you are chasing down both parties to get the rent paid which can be inconvenient and cause more work for you. This is why we recommend setting up online rent payments so there is no back and forth or checks getting lost in the mail.
- Rent Could Still be Paid Late: Even with a cosigner, rent can be delayed whether it’s the tenant or the cosigner who is late to pay. This means a longer time for you to receive your rent money.
Ultimately, if you have other great applicants that wouldn’t require a cosigner, it might save time and make sense for you to rent to a different person that meets your renting criteria by themselves.
How Do I Add a Cosigner to a Lease?
It is highly recommended that you have the cosigner sign an agreement about the responsibility they are taking over as it’s important for you to have a written record of the relationship. Be clear about the terms so misunderstandings don’t arise later. The process of adding a cosigner to a lease is fairly straightforward – here’s a step-by-step breakdown:
- Communicate with the renter why you will be requiring a cosigner and the role the cosigner will take. Remind them it should be someone who is financially stable enough to take responsibility, should they fail to pay rent or other fees.
- Once they have found a cosigner, treat them as an additional tenant and have them fill out an online rental application, and run a screening report to ensure they are financially fit to be a cosigner.
- Create your state-specific lease agreement outlining the terms of the cosigner and the responsibility of each party and add both parties to the lease agreement.
- Get all parties to sign so the lease agreement is legally binding. Make sure they both understand when and how rent should be paid every month. In your TurboTenant account, you can get important documents e-signed to eliminate time and make it easy for cosigners who might live in a different area.
Adding a cosigner to a lease will protect your rentals and increase the ROI of your property investment. Understanding and setting your renter acceptance criteria from the get-go will help you stick to your policies and be clear with applicants while also following Fair Housing laws. If you have recently added a cosigner to a lease, don’t forget to set up online rent payments to make it more convenient, fast, and secure for everyone.
Finding (& Respecting) a Cosigner
Renters – finding a cosigner can certainly be a challenging feat, but thankfully, you do have options. Relatives like parents, good friends, or even a cosigner service are all excellent choices for a cosigner. If you opt to use a relative or friend, the most common cosigners, there are a couple of things to note – this person must be financially stable enough to serve as a backup for rent payments, and you should also have good rapport with them, especially in the case that you need them to serve their given duty.
When it comes to having a cosigner, there is absolutely nothing to be ashamed of. If anything, a cosigner serves as proof that someone trusts you enough to vouch for both your credibility and responsibility.
It’s crucial that you extend the same respect to your cosigner as they do for you. You can achieve this by paying rent on time, taking care of your rental property, and maintaining open communication with both your cosigner and landlord. By doing all of the above, hopefully, the next time you sign a lease agreement, you won’t need anyone’s help locking in the lease!
Lease Cosigner FAQ
Should I screen a cosigner too?
Yes, you should always screen cosigners as they will take responsibility for missed rent payments when the renter fails to pay. Tenant screening will confirm the cosigner can afford to take the financial repercussions.
What if the tenant refuses to have a cosigner?
If a tenant refuses to have a cosigner, it could be another red flag – they might not be the best fit for your property. If you have streamlined your rental marketing online, you will hopefully receive many renter leads interested in your property that will match your rental acceptance criteria better.
Does the cosigner or the renter pay the rent?
While you will decide specific arrangements with the tenant and the cosigner, typically the cosigner will only pay the fees and rent when the renter fails to do so – they are a backup. In some other cases, like with students and parents, cosigners agree to pay the rent every month on behalf of the renter.
This post was updated June 2021.