Guide to Cosigners

Dealing with renters who need or want a cosigner for their rent has become relatively common. For these situations, many landlords have taken to using cosigner lease agreements.

While it may not always be the best option, cosigners can effectively keep your rental property intact during the life and end of a lease. Success on the landlord’s part depends on knowing what a cosigner is, how to lease with one, and what the cosigner is accountable for.

What Is a Cosigner for a Rental?

A cosigner is added to a lease before it’s signed, and they guarantee to cover a tenant’s missed rent payments. Landlords that worry about collecting rent on time may require a cosigner.

Cosigners are legally responsible for all tenant obligations and may be responsible for penalties and fines relating to how the tenant uses the property or if the tenant defaults.

Cosigners might be family members or friends of the lessee or third-party guarantors. The person should have good credit and adequate money to sustain the tenant if they fall late on rent.

Before being added to a lease, cosigners must provide financial information to landlords, just as the tenants would have to. They must also agree to be screened. If a potential cosigner balks at any of the conditions, you might be better off not going through with the rental agreement.

Check state and local rules before signing a cosigner lease. Lease and cosigner arrangements are state-specific, and the rules may affect who can cosign, what can be included in a lease, and other aspects.

The Pros And Cons Of Cosigners

As with any leasing situation, there can be pluses and minuses to consider.

On the pro side, being open to cosigners can:

• First, offer strong financial backing to ensure rent will be paid.
• Widen your potential tenant’s pool, helping you fill your rental units.
• Provide yourself with sufficient coverage even in states with caps to security deposits

Alternatively, there can be some downsides, such as:

• They may be more susceptible to taking on riskier tenants because of the presence of a cosigner.
• There’s no guarantee a cosigner may not be a source of trouble as well. This is why screening is essential.
• There’s extra work involved with cosigners, such as additional screening and keeping property management staff informed.
• State laws vary on how landlord/tenant relationships work and collections are performed. The presence of a cosigner adds another level of complexity, so be sure to understand local rules on these matters.

Screening Tenants and Cosigners

Using a cosigner should act as insurance when renting, but only if the cosigner and tenant are appropriately vetted. Because cosigners are responsible in the same way as renters, you’ll want to ensure they are competent, trustworthy, and can be relied upon to fulfill their leasing obligations.

As much as you’d screen a regular tenant, a successful lease agreement should also include proper vetting of the cosigner.

Common Questions About Rental Cosigners

Here are some of the most frequently asked questions about allowing cosigners onto a lease.

1) Is A Cosigner Like a Roommate?

The cosigner and roommate aren’t mutually exclusive. In fact, roommates are often cosigners on rental agreements and share expenses.

Many landlords require all occupants to cosign the lease to ensure payment, but some will allow subletting if there is a clear path to payment.

Cosigners for house rentals aren’t always residents. Depending on the agreement, a cosigner may be rent security. They must pay rent if the renter falls behind but doesn’t reside there or use other lease benefits.

After signing the agreement, they wouldn’t need to pay or work with the landlord unless there is an issue with timely rent payments.

2) Does the Cosigner Need To Be Included In the Rental Lease Agreement?

Yes. All leasing agreements should contain cosigners. If you don’t include them in the agreement, their legal obligation won’t be evident, and they could avoid the agreed-upon responsibility.

Adding a cosigner to a lease is easy. Instead of drawing up a new lease, add an amendment. This addendum should outline the cosigner’s rights and responsibilities and the rent-default process.

Make sure cosigners are thoroughly informed of their responsibilities and that you’ve worked out clear lines of communication should the need arise.

3) What’s The Difference Between A Cosigner And A Guarantor?

Cosigner and guarantor are rental phrases that are often interchanged.

A cosigner has identical rights and duties as the renter. Roommates may cosign a lease. Cosigners may or may not dwell in the unit, but they’re both accountable for the lease.

A guarantor pays rent if a tenant doesn’t. If the renter can’t pay, the guarantor must, and they typically have no monthly payments or property rights. Before a guarantor pays, the tenant must be declared in default. Landlords tend to prefer cosigners over guarantors to speed up payment.

Your lease agreement and any addendums should clearly describe the terms you use, who is liable for payment, and what will happen if either side doesn’t pay. These clauses must be laid out whether the cosigner lives there or not.

4) Does Cosigning A Lease Affect the Cosigner’s Credit Rating?

Cosigning a lease doesn’t affect credit. A cosigner’s credit score will only drop if the tenant defaults and the credit bureau is notified. As a cosigner, the cosigner is accountable for late or missed payments.

At the same time, cosigning could boost someone’s credit score. But, of course, this is only possible if you, as the landlord, report both tenants’ on-time rent payments.

As long as rent is paid on time and no other lease concerns arise, most cosigners don’t see a difference in their credit.

Setting Up Rent Agreements

Cosigners are becoming more common on leases. Having the knowledge and documentation ready to accommodate a cosigner is a good idea for landlords who don’t want to see their units sitting empty.

If you have questions or want more information on how to set up a lease with cosigners, contact the experts at the Henderson Investment Group. They’re there to help you make the most of your properties.