Should You Allow a Cosigner For Your Tenant?

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 an otherwise qualified applicant, or allow the applicant to have a cosigner. That said, not every rental owner is familiar with the practice of cosigners or how to protect themselves best. 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.

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.

Many landlords, including those who work with a property management company in Philadelphia, use lease cosigners as part of a broader tenant screening strategy for otherwise qualified applicants.

Reasons Why a Tenant May Need a Cosigner

There are plenty of reasons why 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 limited or lower credit history. In these situations, having a co-signer provides landlords added peace of mind about approving the applicant. Let’s dive a little deeper into these reasons to have a co-signer below.

Insufficient Income

Many landlords use rent-to-income guidelines, such as limiting rent to around 30% of an applicant’s gross monthly income, as part of their screening process. Therefore, verifying that the tenant has a steady and sufficient source of income is necessary for landlords.

However, people starting a new job, graduating from college, relocating, or experiencing other major life changes may temporarily struggle to meet income requirements. If they satisfy your other screening criteria, allowing a qualified cosigner may be worth considering.  

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

Reviewing an applicant’s rental history can provide useful information about whether they have met previous lease obligations. Landlords may verify relevant information such as payment history and compliance with prior lease terms, subject to applicable screening laws.

But what if your tenant has never leased before?

If an applicant has no previous rental history, landlords can consider other objective screening criteria, such as income and credit history, according to their established screening policy. This can give them a good insight into whether applicants can and will pay.

Limited or Lower Credit History

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

However, it’s important to note that a credit score provides one piece of an applicant’s financial history, but it should not be the only factor considered when making a leasing decision. A low or limited credit score can result from many circumstances, so landlords should evaluate applicants according to established, objective screening criteria. If an applicant does not meet the property’s credit requirements but otherwise qualifies, allowing a cosigner may be an option, provided the policy is applied consistently to all applicants.

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

If a tenant fails to meet a financial obligation under the lease, a cosigner may be responsible for amounts covered by the cosigner agreement. The exact scope of that responsibility depends on the terms of the agreement and applicable state and local laws.

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 –

• Complete an application
• Authorize applicable credit or background screening
• Provide documentation of income or employment
• Meet established credit and financial requirements
• Demonstrate sufficient income to cover their own financial obligations and the tenant’s rent if necessary

For landlords, the key is to screen the cosigner according to established criteria, just as you would an applicant, to ensure they meet the financial qualifications necessary to fulfill their obligations under the agreement.

What are the Responsibilities of the Cosigner Under a Lease?

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

• Depending on the agreement, a cosigner may be responsible for unpaid rent if the tenant breaks the lease.
• A cosigner may be responsible for tenant-caused damages covered by the agreement.
• If the tenant has roommates, the extent of the cosigner’s responsibility for unpaid rent or other lease obligations depends on the terms of the lease and cosigner agreement.

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. When landlords have a cosigner in place, it adds the 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 the target market of your local market, allowing cosigners can expand your tenant pool. 
• 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 may allow you to approve applicants who do not independently meet certain screening criteria. 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. So, review local laws before making a cosigner policy.

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.

Looking for Help Screening Rental Applicants?

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, employing a property management company, such as Bay Property Management Group, gives owners some 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 if 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.