A guarantor is someone who agrees to be on a lease and guarantees to pay a tenant’s rent in the event that the tenant defaults on their rental obligation. This includes rental payments, the unit’s condition, and any other fees that may be incurred over the rental period.
Usually, a guarantor is needed when a prospective tenant doesn’t meet the qualifications of a rental application including proof of income or lack of credit history. A common example of a guarantor is a parent or guardian that signs on behalf of their college student’s first apartment as they might not have a credit score yet.
As a landlord, it’s important to ensure that you rent your properties to responsible tenants. Since guarantors are legally accountable for ensuring the rent gets paid, landlords can feel more confident in renting to a particular tenant. Keep reading to find out more on what is a guarantor and why they can be great to have on a lease.
Lease Guarantor vs Co-Signer
Like a guarantor, a co-signer is someone who jointly signs a lease to guarantee payment. However, a co-signer has more rights under the lease than a guarantor and is entitled to live in the rental as a tenant. A guarantor is financially responsible for a rental but is not authorized to live in the rental unit.
When Does a Tenant Need a Guarantor?
When you run a tenant screening report, you’ll be able to see various insights on your prospective tenant including their criminal background , credit score, bankruptcies, eviction history, and more. These are all important factors to consider as they can indicate major red flags in potential renters. Generally, landlords are hesitant to rent to a prospective tenant if they have:
- Bad credit: Bad credit can indicate a history of missing payments which is a considerable red flag to landlords.
- Little to no rental history: First-time tenants, like college students, most likely need a guarantor to sign a lease since landlords don’t have a clear indication of money management or credit history.
- Low income: If the monthly rent for a specific property is more than one-third of a renter’s monthly income, a guarantor on a lease will help ensure payments will be made on time, regardless of the tight budget.
- Bankruptcy: Bankruptcy stays on a credit report for up to 10 years, but a guarantor can help alleviate concerns associated with these credit-related issues.
- Bad rental reputation: If a tenant has a bad reputation, like a prior eviction, then a guarantor may be required to assure the tenant will be kept in check and any issues will be responsibly addressed.
- Unstable employment history: Past employment gaps or terminations could result in a required guarantor on a lease so landlords can make sure there is a steady income to pay rent each month.
A guarantor can solve some of these problems by guaranteeing that if a renter is unable to pay rent or for repairs, it will still be taken care of.
Who Qualifies as a Guarantor?
Almost anyone can qualify to be a guarantor. Usually, it’s a family member or friend that personally knows the prospecting tenant and trusts that they’ll be able to make the payments necessary to afford rent. However, there are a few guidelines to be aware of to check that your guarantor qualifies:
- A guarantor should have good or excellent credit.
- A guarantor should have solid proof of income within the U.S.
- A guarantor must make 80 times the monthly rent annually.
- A guarantor is usually over the age of 21.
- A guarantor has a separate bank account than the borrower.
While these are all standard qualifications, every landlord or property management company is different so note the requirements on the rental application.
What if a Tenant Can’t Find a Guarantor?
The biggest benefit of having a guarantor on a lease is that there is a legal cushion in case a tenant can’t pay rent or causes issues. However, some prospecting renters who need a guarantor may not have someone to turn to for help. Whether you are assisting a prospective renter or are a tenant in this situation, here are a few options to consider.
Use a Guarantor Service
If a tenant doesn’t have someone close to them that qualifies to be a guarantor, there are guarantor services companies available. These companies offer the service of acting as a guarantor so they can qualify for a rental, taking out the hassle of trying to find a suitable guarantor.
This option is also great for those who don’t want to bring their relationships into a lease agreement. If a tenant misses a rental payment, not only will a guarantor be asked to remit those payments, but their credit score may take a hard hit. This could cause issues within a close relationship.
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Although bad credit is an understandable red flag, sometimes credit scores don’t accurately reflect a current situation. Some landlords are willing to overlook bad credit history if a tenant offers to pay more upfront, like paying two months of rent in advance or offering to invest in a larger security deposit.
This strategy shows landlords that a tenant has the money needed to make rental payments. If anything, these payments could potentially serve as a buffer in case of unexpected financial challenges that occur.
Work with Them
As mentioned above, certain red flags on a background check or credit report may not accurately reflect the tenant’s current financial situation. Extenuating circumstances can cause hesitation on approvals, but some landlords are willing to hear a prospective tenant’s case.
As a landlord, it’s important to ask good questions and fully understand the circumstances that cause any red flags that appear on rental applications or during background checks.
Pros and Cons of a Guarantor
As you debate whether to rent to a specific renter with a guarantor or to choose a different applicant, it’s important to assess the pros and cons of having a guarantor on a lease.
Pros of a Guarantor
- Protects your rental investment: Having a guarantor to guarantee the rent will be paid covers your basis with a tenant who has a bad credit score.
- Great for young renters: Guarantors 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.
- Safer than higher security deposits: Higher security deposits help safeguard your investment from tenants with low credit, but sometimes won’t make up for the loss of nonpayment of rent.
Cons of a Guarantor
- Doesn’t ensure good behavior: Although guarantors cover rent and other financial agreements of the lease, tenants can still cause issues like noise complaints and other lease violations.
- Potentially more work: You could be put in a situation where you are trying to track down both parties to receive rental payments which causes inconvenience, frustration, and more work for you.
- Rent could still be late: Although rare, rent can still be delayed, even with a guarantor. This means a longer time for you to receive your rent money.
Ultimately, if you have other great applicants that wouldn’t require a guarantor, it might make sense for you to rent to a different person that meets your renting criteria by themselves.
A guarantor isn’t always necessary, but they are great options for prospecting tenants who have low credit scores, low income, or no-to-poor rental history. As a landlord, guarantors help protect your rental investment as they are responsible for your tenants’ rental payments. To help you find the right tenants for you and your rental, use our free rental advertising feature to market your property on dozens of listing websites all from one place.