Why You May Need to Require a Co-Signer or Guarantor

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You have a vacancy and have received a rental application from a promising tenant. As a cautious landlord or property manager, you order an AAOA credit report and background screening to help you decide whether or not you want to rent to this person. Everything looks good, but you are concerned about their credit report.

When a tenant applicant has a shaky credit report—or no credit history at all—how can you know that they are going to be able to pay the rent month after month? 

Enter the co-signer or guarantor. These are people who are willing to take financial responsibility if your tenant can’t or won’t pay their rent on time. If the applicant can provide a reliable co-signer or guarantor, you should be able to feel more confident that any past-due rent and/or damages to the property will be covered.

What is the difference between a co-signer and a guarantor?

An applicant with poor or no credit may ask a family member, friend or financial backer to agree to assume financial responsibility should they become unable to pay their rent or other lease obligations, such as utilities. This person may apply to become a co-signer of the lease or act as a guarantor so that your applicant can move into your rental.

A co-signer signs the lease and has the right to live in the rented space. If they do move in, they are responsible for paying rent just like the tenant whose rent is being secured and is still liable for the outstanding amount if your tenant fails to pay.

A guarantor, on the other hand, assumes financial responsibility for the rental property if the tenant fails to pay rent. They are a safety net for you in the event that the rent cannot be paid by the tenant or for damages they might have caused to your property. A guarantor is not a tenant and cannot live in your unit.

So, in a nutshell, a co-signer is immediately responsible for paying rent like the tenant. Conversely, a guarantor is only responsible for paying rent if the tenant fails to do so.

The importance of screening a co-signer or guarantor

It’s vitally important to order a rental credit check and landlord background screening for a co-signer or guarantor, This person is the one you will count on if your tenant cannot pay the rent, so you must be confident that they can fulfill that obligation.

The Fair Housing Laws that apply to tenants also apply to co-signers and guarantors. That means you cannot discriminate against them based on race, color, national origin, religion, sex, familial status, or disability.

Once you have obtained a completed application form from the co-signer or guarantor, log into AAOA to order the reports. When the reports are completed, check out their credit score, payment history and employment status to ascertain whether they are financially stable and reliable. Do they have a criminal or eviction history? Were there any liens, bankruptcies or judgments against them in the past seven years?

If everything checks out with the co-signer or guarantor and you want to move ahead with them, be sure to complete the proper lease agreement forms, which are available on AAOA.

What if no co-signer or guarantor is available?

When the applicant does not have a co-signer or guarantor available, LeaseGuarantee may be the answer. A unique plan available only to AAOA members, LeaseGuarantee covers all individuals on the lease agreement up to the amount you selected for 12 months and is renewable.

At the time you run the applicant’s credit report, the LeaseGuarantee Analyzer will determine the cost of the program based on the applicant’s credit history and other factors. If your tenant qualifies, you will have 10 days to select annual protection of $1,000, $2,500, $5,000, $7,500, or $10,000.

Click “Get LeaseGuarantee” on the tenant background check to purchase or invite your tenant to purchase LeaseGuarantee. You might also discuss with them the possibility of using LeaseGuarantee to replace or supplement their security deposit.

Requesting a co-signer or guarantor can be stressful for property owners, but it doesn’t have to be. At the American Apartment Owners Association (AAOA), we offer innovative approaches, such as LeaseGuarantee, to managing properties. We are the nation’s largest landlord organization with more than 148,000 members nationwide.