All About Cosigners: A Landlord’s Guide

Lease Cosigner

As a landlord, you’ll have to consider a number of qualities and details about a prospect through your tenant screening process. One of the most important details to consider is your tenant’s finances whether they will need a lease cosigner. 

It can be a difficult choice for landlords to make when it comes to accepting lease cosigners. In fact, many landlords shy away from allowing cosigners. This is because they are typically needed for renters who aren’t considered to be financially stable enough to rent without extra security. 

However, before you shut down the idea of allowing a lease cosigner, it’s important to make an informed decision. We’ve got all the information you need to know about cosigners and whether they are the right choice for you and your business.

What is a Cosigner?

A cosigner is an individual that accepts the responsibility of making rent payments in the event that a tenant does not or cannot pay. These individuals have signed the lease agreement and have taken on the responsibility knowingly and willingly. Cosigners and lease guarantors (more on them later!) must be on the lease agreement or they cannot legally be held responsible for rent payment.

Cosigners are common for tenants with limited rental or credit history, such as first-time renters. Taking on the financial responsibility of additional rent payment is a big decision, which is why cosigners usually have a close relationship with the tenant. Typically, a parent, family member, or close friend will act as a cosigner. 

Freelancers or those who are self-employed and have a hard time presenting traditional proof of income may need co-signers. Anyone who has a non-traditional source of income may have a hard time convincing landlords that they won’t be considered rent-burdened tenants. A cosigner will help to provide landlords with peace-of-mind when it comes to receiving rent payments. 

The Benefits of Lease Cosigners

Requiring a lease cosigner is a great way to be proactive when it comes to protecting your rental income. It helps to decrease the chance that you will be unable to collect rent in the event that a tenant defaults on their rent payment. You may have to spend the extra time and effort reviewing a cosigner’s application and adding them to a lease. However, it is a lot better than the alternative of not collecting any rent. 

Additionally, allowing lease cosigners can help to increase your pool of applicants by opening it up to those that might not fit your ideal rent-to-income ratio. If you are renting in a cool market, accepting a cosigner can help you avoid having to lower your rental rates to stay competitive. You’ll have a larger pool of applicants compared to your competition. 

The Cons of Lease Cosigners

It’s important for landlords to remember that a cosigner will help to reduce the financial risk of accepting a rent-burdened tenant, and nothing more. A cosigner does not erase any other risks that a tenant may pose, from breaking the covenant of quiet enjoyment to performing illegal acts on the property. 

That’s why it’s imperative to consider the full picture that a prospect presents through a thorough tenant screening process. Prior evictions, criminal history, and current job status are all important things to consider. These details will help you conduct an in-depth evaluation of your tenant. 

Should You Allow a Cosigner on Your Lease?

Whether you choose to allow a cosigner on your lease is completely up to you. Some landlords prefer to have tenants pay a larger security deposit before signing the lease, rather than adding a cosigner. However, this option can be limiting as some states cap security deposits so that they cannot exceed two month’s rent payment. 

Not only do great tenants offer consistent income and timely rent payments, but they also keep your property in peak condition. That said, there is no single defining characteristic that will determine whether a tenant will be good. A tenant that needs a lease cosigner should not immediately be ruled out as a candidate. 

However, you’ll need to do your due diligence on the cosigner before adding them to the lease. You should subject a cosigner to the same screening methods you use for any prospective tenant. First and foremost, you’ll have to determine whether the cosigner is financially able to take on the responsibility of being a cosigner.

Alternative to a Lease Cosigner

A lease cosigner isn’t the only one who can help to alleviate the risk of accepting a tenant with a difficult financial situation — you should also consider a lease guarantor.

The difference between a lease guarantor and a lease cosigner is more technical than anything, but it’s important to understand the difference between the terms. A lease guarantor is an individual, usually a family member, that guarantees the rent payments in the event that your tenant can’t pay. Typically they don’t reside in the unit with the tenant, as many co-signers do. 

Remember to ensure that you conduct a thorough screening of guarantors, as well as tenants. Guarantors should at minimum a monthly income of six times the monthly rent. This is double the standard rent-to-income ratio because guarantors need to be able to cover both their own housing costs and the tenant’s cost (if necessary).

Key Takeaways

In a perfect world, every prospective tenant would be financially able to pay their rent with no problems. However, there are instances where even a tenant with a great renting track record may need additional assistance. Lease cosigners act as an income failsafe for landlords and help renters get into a great unit. They are the unsung heroes of the renting world. 

Whether you choose to allow lease cosigners is completely up to you. Before making a final decision about your policy on cosigners, do your research to make an informed decision about whether it’s the right choice for you. 

Regardless of whether you choose to allow cosigners, you’ll need to make sure your tenant screening methods are up to scratch. If your tenant screening process can do with some updating, check out PreApproved Renter. With a plethora of rental applications on hand and a customization tool, PreApproved Renter makes it easy for you to get all the information about a tenant that you need. Not to mention, you can conduct credit checks which will make your decision regarding cosigners just that much easier.