It’s getting hard out there for a tenant. Rents are high—even in North Dakota, where the nation’s lowest average rent sits at about $835. Rents are so high most people are now what’s called “rent burdened,” which means they’re spending 30% or more of their income on rent.
It’s challenging enough to break off nearly a third of your paycheck every month just to have a roof over your head. Making it even more challenging is the increasing use of income requirements by landlords, which require that rent burden to be a third of your income or less. In short, income requirements mean prospective tenants must make about three times the rent to be eligible for a lease. That means if the monthly rent is $1,000, your landlord will require proof that you make at least $3,000 every month, or $36,000 a year.
This can be incredibly frustrating if you know you can cover the rent but you come up just a little short on the income requirement. If you find yourself in a situation where a landlord won’t budge a little on that income requirement (or has concerns about some other aspect of your financial situation, e.g. your credit score), what are your options?
What is a rent co-signer?
One option might be a rent co-signer. A rent co-signer is someone who agrees to share responsibility for paying your rent. Typically a rent co-signer lives in the apartment with you and is listed on the lease, with the provision that they’re responsible for the rent if you don’t pay it (as opposed to a roommate who is only responsible for their share of the rent).
But what if you don’t have anyone willing to take that risk with you, or you just don’t want a roommate? You can look into companies known as lease guarantors. These companies will co-sign your lease, guaranteeing the rent and usually persuading a landlord that your close-but-not-quite income is good enough. Basically, if you fail to pay your rent, the lease guarantor is on the hook for it, so your landlord can sleep at night.
An individual can be a lease guarantor, but landlords typically require that they earn anywhere from 40 to 90 times your rent. If the rent is $1,000, any guarantor would need to show income of at least $40,000, and possibly as much as $90,000, to be considered. That makes it tough to find someone willing to co-sign for you. This means your only option might be a lease guarantor company, also known as a co-signer service.
Co-signing for a fee
A co-signer service company essentially agrees to act as co-signer on your lease in exchange for a fee. If your landlord agrees, they legally agree to pay your rent if you fail to do so. In exchange, you agree to pay them a fee usually calculated as a percentage of your rent (if the rent is $1,000 and there’s a one-time fee of 10% of your annual rent, you’ll have to cough up $1,200 to get the guarantor to sign on, for example). And you pay this fee even if you never miss a rent payment, because the service you’re paying for is them vouching for you financially.
Some of the most prominent lease guarantor companies are The Guarantors, Insurent, and Leap. Finding the right one for your needs will depend on your specific situation and what companies operate in your area—Insurent is only available in ten U.S. states and Washington D.C., for example—and all rent so-signer services vary in terms of their own financial requirements (usually pegged to your credit score) and fees.
Still, if you’re missing the income cutoff for an apartment or have other financial problems making a potential landlord hesitate, a co-signer service could be a solution. But there are some downsides to consider:
Not universal. Not all landlords are willing to work with lease guarantors, or may not work with the company you prefer. Reimbursement. If you do miss rent payments and your guarantor has to cover you, you’ll be expected to reimburse them, and there may be penalty fees on top of that. Roommates. Some lease guarantors offer co-signer services by the lease, meaning you pay a single fee and don’t need to involve anyone else. Some require all the tenants on the lease to sign up.On the other hand, a lease guarantor not only may allow you to move into the apartment of your choice, it can also spare you from involving friends or family in your finances.
So, is a lease guarantor a good idea? If you have the extra cash to cover a guarantor’s fees, you might try offering your prospective landlord a higher security deposit instead—you’ll theoretically get that money back when you end your lease, and it will keep third parties out of your business. But if that’s not an option and you’re confident you can cover the rent, your landlord is willing, and you have the extra cash to pay the fees, then it might be your best move. If there’s a compelling reason you need to be in this specific property as opposed to an apartment with lower financial goalposts, a lease guarantor can be a good move, especially since many of these companies also offer ancillary services like security deposit replacement and renter’s insurance.
