When You Should Use a Rental Guarantor Company (and When You Shouldn’t)

The tenant is getting more and more difficult. Rents are high even in North Dakota, where the lowest median rent in the country is around $835 . Rents are so high that most people are now what is called ” rent-burdened “, which means they spend 30% or more of their income on rent.

It’s hard enough taking almost a third of your paycheck every month just to have a roof over your head. Even more challenging is that landlords are increasingly using income requirements , which require the burden of renting to be a third of your income or less. In short, the income requirements mean that potential tenants must pay roughly three times the rent to be eligible for a lease. This means that if the monthly rent is $1,000, your landlord will require proof that you earn at least $3,000 a month, or $36,000 a year.

It can be incredibly frustrating if you know you can cover your rent but are a bit short on income. If you find yourself in a situation where the landlord won’t agree one iota with this income requirement (or has concerns about some other aspect of your financial situation, like your credit history ), what options do you have?

What is a lease guarantor?

One option could be a rental guarantor. A rent guarantor is a person who agrees to share responsibility for paying rent. Typically, the rent guarantor lives with you in the apartment and is listed on the lease with the stipulation that they are responsible for the rent if you don’t pay it (unlike a roommate, who is only responsible for his share). from rent).

But what if you don’t have anyone willing to take that risk, or you just don’t need a roommate? You can turn to companies known as rental guarantors. These companies will sign a lease guaranteeing the rent and generally reassuring the landlord that your small but not quite good income is good enough. Basically, if you don’t pay rent, the rent surety is on the hook, so your landlord can sleep at night.

An individual can be a rent guarantor, but landlords usually require them to earn 40 to 90 times your rent . If the rent is $1,000, any surety will need to show income of at least $40,000 and possibly up to $90,000 to be considered. This makes it harder to find someone willing to sign for you. This means that your only option may be a rental guarantor company, also known as a co-signer service .

Co-signing on a paid basis

The co-signer service company is essentially agreeing to act as a guarantor for your lease in exchange for a fee. If your landlord agrees, they legally agree to pay you rent if you don’t. In return, 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 shell out $1,200 to get a cosigner to sign, for example) . And you pay that fee even if you never miss a rent, because the service you pay for is a financial guarantee.

Some of the better known rental guarantee companies are The Guarantors , Insurent and Leap . Choosing which is right for you will depend on your specific situation and which companies operate in your area – for example, Insurent is only available in ten states in the US and Washington, DC – and all rent signing services differ from in terms of their own financial capabilities. requirements (usually linked to your credit score) and fees.

However, if you have missed the apartment income cap or have other financial problems that make a potential landlord hesitant, a guarantor may be the solution. But there are also disadvantages to consider:

• Not universal. Not all landlords are willing to work with rental guarantors or may not work with the company you prefer.
• Reimbursement. If you miss your rent and your guarantor has to cover you, you will have to pay them back, and penalties may apply on top of that.
• Room neighbours. Some lease guarantors offer lease co-signer services, which means you pay a one-time fee and don’t need to involve anyone else. Some require all lease tenants to sign.

On the other hand, a rental guarantor may not only allow you to move into an apartment of your choice, but also save you the hassle of getting friends or family involved in your finances.

So, is a rental guarantor a good idea? If you have extra cash to cover the guarantor’s fees, you can offer a potential landlord a higher security deposit instead – in theory you’ll get that money back when you terminate the lease, and this will keep third parties from interfering with your business. But if that’s not an option and you’re sure you can cover the rent, your landlord agrees, and you have extra money to pay the fees, then this might be your best bet. If there is a good reason why you need to be in that particular property rather than an apartment with lower financial goals, a rental guarantor can be a good move, especially since many of these companies also offer additional services such as deposit replacement and tenant insurance.