What is a Guarantor?

A guarantor is a person who has agreed to co-sign a rental lease agreement with the tenant who is moving in, as such guarantees to pay the rent if the tenant falls behind or is unable to do so. Typically, a guarantor is a parent, close friend, or other family member who is willing to be legally and financially responsible for the rental property.

The terms guarantor and co-signer are sometimes used interchangeably when talking about apartments and rental homes. In these situations, both guarantors and co-signers are responsible for paying the rent if the tenants do not.

What does being a guarantor mean?

There are a few things to consider if you are approached by a family member or close friend and asked to be a guarantor for their rent.

First, think about both your own financial situation as well as this individual's trustworthiness. As long as they regularly pay their rent in full every month and fulfill their lease obligations, being a rent guarantor can be almost completely harmless and cost you nothing.

On the other hand, if the renter you've guaranteed falls behind or commits a lease violation that results in a fee that they refuse to pay, you will be on the hook for making that payment. It's important to honestly consider what the likelihood of that happening could be, as well as whether or not your own finances could handle being on the hook for someone else.

Due to rising rental rates and stagnating wages, many people in the United States could need a guarantor just to be accepted at the median national rent level. Using you as a guarantor could be your relative or friend's opportunity to finally begin their independent life - an opportunity that they may not realize on their own. Take the time to make sure you can afford it if they falter a little in their journey.

Can anyone be a guarantor?

Yes, almost anyone can be a guarantor. Often, a guarantor is a parent or guardian, but occasionally, they can be a friend or distant relative. Ultimately, you should only be a guarantor for someone you know and trust and would be willing and able to cover financially.

Here are some requirements for being a guarantor:

1. Over 21 years of age
2. Have a very good credit history and financial stability
3. Have a separate bank account from the tenant
4. Being a homeowner is not a requirement, but will add credibility to the application.

Whether you've been approached by a friend or family member in need, or you're considering asking someone you trust to be your guarantor, you need to be fully aware of the financial risks this situation asks you to take. If the tenant doesn't make their monthly rent payments, you will be legally responsible for paying in their stead or accepting the consequences.

Apart from the strain of the financial burden, guarantor/guarantee situations can sometimes cause family feuds or end life-long friendships. Both the tenant and the guarantor should be honest with themselves and each other about whether or not they can commit to the payments and lease terms.

Why would someone need me to be a guarantor?

Many people ask loved ones to be a guarantor for one of the reasons below:

1. They've got a low credit score
2. They haven't established a credit history
3. They have a low salary
4. They've just started a new job

Perhaps they need a guarantor for a rental property, car finance, a loan, or a mortgage. Whatever the reason for seeking out a guarantor, you need to have a close enough relationship to feel comfortable discussing finances openly with them.

Before agreeing to be a guarantor, you need to ask yourself:

1. Are they responsible?
2. Why do they need me to be their guarantor?
3. Do they have a bad credit history, and if so, do you trust them to keep up with their rent each month?
4. Can you afford to pay back unpaid rent for months if they can't or won't?
5. Would having to cover their rent payments affect your relationship?

Being a guarantor for a rental property means that you vouch for the tenant. If the tenant is unable to meet the obligations outlined in the lease agreement, you will be legally bound to cover the payments, whether that is overdue rent or property damages and repairs.

Who can act as a rent guarantor?

A rent guarantor is usually a parent, family member, or close friend of the tenant. To qualify as a guarantor, you will need to provide the landlord with the same documentation as if you were personally applying to rent the home.

1. Proof of income
2. Bank statements
3. Social Security number (used to perform credit and background checks)
4. Additionally, if you are self-employed, you'll need to provide your tax returns from the past two years.

If a prospective renter cannot find a guarantor in their personal circle, they can hire a guarantor company to guarantee the lease. The downside is that these services often have a high cost; fees generally range from 4% to 10% of the annual rent due upfront. To hire a guarantor for a $20,000 rental with a one-year lease and a 7% fee, the tenant can expect a service fee of $1,400.

What are the requirements of being a guarantor on a lease?

Not every guarantor will be a good fit for your rental, despite their willingness to vouch for the tenant. Due to the fact that a guarantor potentially will need to pay for the tenant's rent in addition to their current living expenses, they need to meet strict requirements:

1. A lease guarantor must have an even higher credit rating than is normally required for your rental. Expecting a Very Good or Excellent FICO score (740-850) is not an unreasonable ask.
2. A guarantor should have a very high income relative to the rent. A monthly income of 6x the monthly rent is typically expected.
3. If the rent is $1,200 per month, the guarantor's monthly income should be at least $7,200.

What having a rent guarantor means for landlords

As a landlord, it is ultimately up to you to decide exactly what requirements a guarantor must meet. Consider the risks involved should the worst happen, as well as the benefit of having strict requirements in place.

You should have a screening process for guarantors much like the process you have for potential tenants. In addition to checking credit score and verifying income, you should also verify the following:

1. Proof of employment/salary
2. Photo ID such as a passport or driver's license
3. Recent tax returns
4. Recent pay stubs
5. Recent bank statements

Landlords should update the lease agreement prior to all parties signing to include the expectations and responsibilities placed on the guarantor. The guarantor also must sign the lease along with the tenant.

What happens if the tenant/guarantor cannot pay the rent?

If neither the renter nor their guarantor are is able to pay the rent, any of the following circumstances could occur:

1. Late fee accrual (on top of expected rent payments)
2. A significant drop in credit score
3. Damaged relationships between tenant and guarantor
4. Legal action or eviction in extreme cases

Each person's credit score will be affected, and as the landlord, you can take action against them. Landlord action usually begins in the form of a late fee. However, if you have repeatedly charged late fees that are now piling up and have not been paid, you may be on legal grounds to evict the tenant and/or sue the lease guarantor.

If the situation comes to legal action, the guarantor is also named in any collections and court cases. Additionally, future creditors will be able to see the collections and late payments on both parties' records.

Conclusion

In the end, if you have a large pool of applicants that wouldn't require a guarantor, it might be wiser for you to rent to a different person that meets your renting criteria on their own merit and credit history. In most cases a guarantor is merely a safety measure, and the tenant will be able to regularly make their rent payments on their own. However, it is important to weigh your financial risks against your options.

A guarantor isn't always necessary, but they are a great support for potential tenants who have low credit scores, low income, or nonexistent or shoddy rental history. As a landlord, guarantors help protect your rental investment through their responsibility for your tenants' rental payments. Trust in CreditLink Secure's free Tenant Screening to help you find the perfect tenants for you and your rental. Sign up today to streamline your rental process!