Should Landlords Allow a Cosigner?

Occasionally, landlords will come across applicants who seem great on paper but do not quite meet the income or credit requirements. When this occurs, landlords have two options: deny them and lose a potentially good tenant or allow the applicant to use a cosigner. That said, not every rental owner is familiar with the practice of cosigners or how best to protect themselves. So, join us as we walk you through what it means to have a cosigner on a lease, their desired qualifications, and key responsibilities below. Whatever you decide, put the policy in writing and apply it the same way to every applicant.

Main Takeaways

• A qualified cosigner can help landlords approve applicants who have limited income, rental history, or credit while reducing financial risk.
• Cosigners should be screened just as thoroughly as tenants since they accept financial responsibility under the lease.
• Clear lease language and consistent screening criteria help landlords decide when accepting a cosigner makes sense.

What is a Cosigner?

A cosigner is a third party who is financially accountable should the tenant be unable to pay the rent. While this person is liable for payment, they do not typically live in the rental property. For example, a parent may cosign for a student going off to college and renting their first apartment. Also, most landlords, including those who work with a property management company in Philadelphia, use lease cosigners to screen applicants.

Note: A guarantor is similar but not the same; see our guide on what a guarantor is to learn the differences.

Reasons Why a Tenant May Need a Cosigner

There are many reasons a prospective tenant looking to lease your rental may need a cosigner to seal the deal. These include insufficient income, lack of rental history, or questionable credit. In these situations, a cosigner gives landlords added peace of mind when approving an applicant. Let’s dive a little deeper into these reasons to have a cosigner below.

Insufficient Income

A widely used benchmark is that households spending more than 30% of their gross monthly income on rent are considered cost-burdened, which can make consistent on-time payment harder. Therefore, verifying the tenant has a steady and sufficient source of income is necessary for landlords.

However, for those recovering from a job loss, medical event, or other life change, changing life circumstances, or looking to live on their own for the first time, meeting this requirement can be tough. That said, if a tenant meets other requirements in every way, allowing a high-quality applicant to have a cosigner is a great option.

The key here is to have stringent cosigner requirements as well. This is not a matter of simply choosing anyone; the cosigner must have sufficient income for their own bills and the rent if the tenant cannot cover it.

Lack of Sufficient Rental History

Evaluating the type of tenant an applicant has been is a good predictor of the tenant they will be like in the future. Hence, verifying previous landlord references is an essential part of the screening process.

But what if your tenant has never leased before?

While this may seem risky, it is worth considering other factors in the overall application. In the instance of no rental history, a cosigner may or may not be necessary. Even though a cosigner offers some peace of mind, consider factors such as creditworthiness, personal references, and income verification. This gives landlords a good insight into whether applicants can and will pay.

Questionable Credit History

One great way to gauge a tenant’s ability to pay rent on time is to perform a thorough credit review. A credit report shows a complete financial picture, including any late payments, outstanding judgments, bankruptcy, or large debts. Therefore, landlords must consider the whole picture, not just the numerical credit score, when deciding between applicants.

The truth is that credit scores give property owners a preview of past behavior. A low credit score, or even worse, no credit score, can mean that payments have been missed, too much credit has been taken out, and the responsibility to handle a tenancy is simply nonexistent.

However, it is important to assess each low credit score rating on a case-by-case basis. For example, a young person who hasn’t had time to build a good credit score is one thing. On the other hand, a tenant who cannot handle the responsibility of paying bills on time and thus has a low credit score is entirely different. So, even with a cosigner in place to help reduce these problems, you may decide it is not worth the risk.

Many circumstances could impact a credit score, such as large medical debt or bankruptcy after a divorce. That said, if you have a tenant with reasonable income, solid references, and who seems like a great match but has a low credit score, consider having them enlist a cosigner.

What Does It Mean to Have a Cosigner for Your Rental Property?

If the tenant leasing your property cannot fulfill their financial obligation under the lease for any reason, the cosigner takes full responsibility for making the payment. This helps the tenant avoid eviction and ensures the landlord receives the full rent due.

The Requirements to Cosign for a Lease

Just like the applicant themselves, a cosigner must meet certain screening criteria in order to qualify. That said, there are several things landlords can request of a cosigner before accepting them as a financial backer, including –

• Cosigners must complete a rental application complete with an application fee
• Submit to a full credit review and screening report, with any applicable fee
• Proof of steady employment
• Complete financial history
• Proof of income equal to approximately 3x to 6x the monthly rent

For landlords, the key is to screen the cosigner just as you would an actual tenant. Thus, ensuring they are a good fit and can be relied upon to pay rent if the tenant cannot.

Apply Your Cosigner Policy the Same Way to Everyone

Treat cosigner decisions as part of your overall screening process, which must comply with the Fair Housing Act and applicable state and local laws. Consistency protects you and your applicants. Set clear, written cosigner criteria (when one is accepted, the income and credit standards, and the documents required) and use them for every applicant. Do not waive or add requirements for some applicants and not others. Prospective tenants should be screened using a consistent set of criteria that may include rental history, income verification, credit review, and other factors evaluated in accordance with applicable fair housing laws.

Cosigners and Housing Voucher Holders

At BMG, we accept lawful sources of income, including housing vouchers, where required by law. However, when you apply an income requirement to an applicant who uses a housing voucher, apply it to the tenant’s portion of the rent, not the full contract rent. Do not ask a voucher holder for a cosigner or guarantor at a multiple of the full rent. The 6x-rent benchmark above applies to the rent the tenant is responsible for, not the voucher-covered portion.

What are the Responsibilities of the Cosigner Under a Lease?

Becoming a cosigner is not something to take lightly. Therefore, if you choose to allow a cosigner for your tenant, they must understand the following responsibilities –

• If the tenant breaks the lease, the cosigner can be pursued for unpaid rent
• Any unpaid tenant damages become the responsibility of the cosigner
• If the tenant has roommates, the cosigner signs for the entire lease and the full rent amount, not just one roommate’s portion. The cosigner is not living in the rental property but agrees to take on the full financial obligations of the agreement, regardless of who is at fault for non-payment (the tenant or possible roommates).

The Pros and Cons of Allowing Lease Cosigners

For all decisions landlords make, there are benefits and disadvantages to weigh. If you are on the fence about whether or not to establish policies to allow cosigners, consider the following –

Benefits of Accepting Cosigners

• Limit Financial Risk – Even the most well-intentioned tenant can fall on hard times. With a cosigner, landlords have extra assurance that rent will be paid.
• Expand the Tenant Pool – Not every tenant can meet the standard qualifications for a variety of reasons. Depending on your local market’s target demographic, allowing cosigners can expand your tenant pool. For example, if your property is in a college town popular to students, many may not have sufficient rental or credit history to rent on their own.
• Edge Out the Competition – Rental properties are a competitive industry. So, any advantage your property has over another is a good thing. Allowing cosigners under certain circumstances allows you to accept tenants that other owners may deem a higher risk. While allowing a cosigner is still a risk, reviewing all of the screening criteria involved creates a calculated risk that pays off for many landlords.
• Checks and Balances – A cosigner can act as an additional layer of accountability for the tenant. Since they likely do not want to pay extra bills besides their own, they can help ensure the tenant pays on time.

The Cons of Accepting a Lease Cosigner

• No Guarantees – Although a cosigner accounts for the financial end of the agreement, they cannot guarantee tenant behavior. So, landlords may find themselves dealing with excessive noise, damage, or other questionable behavior.
• Added Administrative Costs – Having additional applicants in the form of a cosigner apply means more screening work for landlords. While not a dealbreaker for most, it is something to plan for.
• Rules and Regulations – Depending on where your property is, specific laws and rules may apply to how landlords can pursue delinquent rent. This includes when and how to go after a cosigner. Review local laws before creating a cosigner policy. Fair housing rules also require that you apply your cosigner policy consistently to every applicant.

FAQs About Lease Cosigners

Allowing a cosigner can help you approve qualified applicants while protecting your rental income. Here are answers to some of the most common questions landlords ask about lease cosigners.

What is the difference between a cosigner and a guarantor?

Although the terms are sometimes used interchangeably, a guarantor generally agrees to pay only if the tenant defaults, while a cosigner often shares financial responsibility under the lease from the beginning. The exact legal responsibilities depend on the lease agreement and state law.

Can a landlord require a cosigner?

In many cases, yes. If an applicant does not meet established screening criteria, a landlord may require a qualified cosigner, provided the policy complies with applicable laws and is applied consistently to applicants.

Should landlords screen a cosigner?

Absolutely. Landlords should verify the cosigner’s income, credit history, employment, and financial stability just as they would for the tenant.

Is a cosigner responsible for property damage?

In many cases, yes. Depending on the lease agreement, a cosigner may be financially responsible for unpaid rent, damages beyond normal wear and tear, and other lease obligations if the tenant fails to meet them.

When does it make sense to allow a cosigner?

A cosigner may be appropriate for first-time renters, recent graduates, applicants with limited credit history, or individuals who have experienced temporary financial setbacks but otherwise meet your screening standards.

How to Protect Your Rental Business Interests

As a rental property owner, it is vital to approach your business objectively, and leasing a valuable rental property can be difficult when trying to collect full rent every month. Yet, hiring a property management company like ours gives owners much-needed peace of mind.

With thorough tenant screening procedures, strict rent collection policies, the ability to back you in court in the case of non-payment, and the willingness to manage all other things property-related, owning a rental property can become the enjoyable experience it should be with full-service management. If you are wondering whether accepting lease cosigners is right for you, or just want to see if you could get more for your investment, contact Bay Management Group today.