What is a guarantor? A rent guarantor co-signs a tenant's lease and agrees to take responsibility should the tenant default on rent
Sometimes you’ll get applications from prospective tenants who don’t quite meet your criteria. For example, maybe they have just moved out of their family home, have bad credit, or maybe they’re a freelancer and have irregular income.
However, they may otherwise look like a good choice on paper and if you’re eager to fill your vacancy fast you shouldn’t dismiss them out of hand. A tenant who matches this description can actually be a perfectly viable candidate to rent your property out to.
The catch is that they should have a rent guarantor. But what is a rent guarantor and how and when should you ask for one?
Otherwise known as a lease guarantor, a rent guarantor is someone who co-signs on a tenant’s lease in order to help them qualify for the rental. For example, a landlord might require tenants who have no previous rental history to have a guarantor.
Having a guarantor in this scenario mitigates the risk associated with accepting their application, as should the tenant fail to pay rent for whatever reason, the guarantor also becomes liable.
There are many other reasons why a prospective tenant may need to enlist a guarantor on the lease.
As circumstances vary significantly from individual to individual, there is no blanket answer to the question ‘who needs a rent guarantor.’ With this being said, there are certain circumstances where a renter would benefit greatly from having a guarantor.
With a lack of previous rental history and no references, a landlord renting to a new or younger renter may feel more comfortable if a guarantor can co-sign. This could be someone who is moving out of home for the first time or a student who is still studying full time.
Despite potentially having a fair-paying job, a recent graduate may be similar to first-time renters in that they have limited experience of renting a room or property. They may also be moving to a new city to work for the first time, where rents may be higher. A guarantor might be the thing they need to get started.
It may be risky to rent to low-income earners, but this doesn’t mean that they should be shut out of the rental market altogether. A rent guarantor can provide some reassurance for landlords here.
However much they may earn, a bad credit score (typically from 300-600) can be a red flag for landlords. Given their history, prospective tenants with bad credit are statistically harder to rely on. A guarantor who can back them up may give the landlord peace of mind.
Tenants who do not have standard employment may have an irregular income. These could be seasonal workers, who only work during a portion of the year, or freelancers or self-employed. A guarantor can reassure landlords that the rent will be paid in full on a monthly basis.
Someone who is new to the country may not have a satisfactory US credit score. Furthermore, they may not have experience in the rental market, leaving them in a similar situation to first-time renters.
Depending on the prospective tenant, their relationship with the guarantor may vary. In general, a guarantor should be anyone who is trustworthy, responsible, financially stable, and can be relied on to step in, if needed. A guarantor on a lease may be a:
Needless to say, they also need to be willing to guarantee your lease, should the tenant fail to pay the rent at any point during the lease. It is also common for landlords to request that the guarantor is local or in-state but this is ultimately up to the landlord to decide.
For those who are unable to enlist someone in their current network to help out (for example, someone who has recently moved to the country with no family or friends in the area), third-party guarantor services are available.
Unsurprisingly, third-party services do come at a premium (this can be over 100% of a month’s rent). The renter will also have to provide proof of their income, assets and credit score. Nonetheless, guarantor services are an option for those who have no other viable alternative.
Just because your prospective tenant has a parent or close friend who can vouch for them, this does not mean that a guarantor is fit for the job. As a guarantor may potentially need to pay for additional rent on top of their current living expenses, they need to meet strict requirements:
Eg. if the rent is $1,500 per month, the guarantor’s monthly income should be at least $9,000.
As a landlord, it is down to your discretion to decide exactly what requirements a guarantor needs to meet. To prevent issues down the line, consider the risks involved and the benefit of having strict requirements in place.
In the same way that you screen potential tenants, you should also have a screening process for guarantors. As well as checking credit rating and income, you should also check/verify the following:
The lease should also be updated accordingly to account for the expectations of the guarantor. The guarantor should also sign the lease itself, along with the tenant.
If the renter is unable to pay their rent and their guarantor is not able to pay instead, this could lead to the following circumstances:
With rising rent prices around the world, it’s unsurprising that not everyone can easily afford rent, especially if their circumstances mean that they have no prior renting history or a lower than desirable credit score.
This is where a rent guarantor comes in. Remember that as a landlord, you are within your rights to ask for a rent guarantor to co-sign the lease. This will give you the peace of mind of having a safety net, minimizing the potential risk associated with a wide range of prospective tenants. You can take advantage of a wider pool of applicants, leading to lower vacancy rates and a higher rental income.