Accepting a co-signer can help you fill vacancies when the market is tight, while ensuring you have recourse if rent is not paid on time. Instead of just rejecting an applicant with a poor credit score or low income, you can choose to accept it and mitigate your risk with a co-signer. This second part is called a co-signer of the lease. Usually, the co-signer is someone who has more financial security and responsibility than the primary tenant. Since they have a stronger financial history, the landlord can count on receiving payment, even if the primary tenant is not as reliable. In this case, renting to someone using a secondary co-signature agreement is a great way to provide financial security. Usually, a co-signer is a family member, friend, or colleague with a strong credit history and a stable financial situation who earns enough to pay the monthly rent. If the tenant no longer pays the rent due to certain circumstances, a co-signer assumes full responsibility for paying the rent. That`s why it`s important to understand any potential liability issues that a co-signer might face. Although you make specific agreements with the tenant and co-signer, the co-signer usually only pays the fees and rent if the tenant doesn`t – they are a safeguard. In other cases, such as students and parents, co-signers agree to pay the rent each month on behalf of the tenant. Apartment Guide points out that a co-signer will give you more options in case something goes wrong.
Depending on your state`s laws, you may be able to track both parties` payment at the same time or go directly to the co-signer. Since late payments can affect both the tenant`s balance and their co-signer, the co-signer has the motivation to remedy the situation quickly. While not all owners like this type of document, some find that it gives people a second chance in a relatively safe way, and it can make all the difference. Let`s learn more about co-sign agreements and how you can create your own document using our sample template. Some people may opt for a co-signer because they do not have a significant credit history (e.B students) or do not meet income requirements. Perhaps they are self-employed and it is more difficult for lenders and homeowners to accurately estimate their real income. If a tenant refuses to have a co-signer, this could be another red flag – it may not be the best choice for your property. If you`ve optimized your online rental marketing, I hope you`ll get plenty of prospective tenants interested in your property and better match your rental acceptance criteria. Renting to tenants who have a low credit score means they might have a history of missing payments, which is usually a red flag.
However, sometimes tenants are young, like students, and may not even have a credit score. This is often the case when a parent or family member enters into a lease as a co-signer to guarantee the rent as financial liability. According to Nolo, a co-signer is a person who is destined to make rent payments if the tenant does not pay. They sign their name for the lease and are fully responsible for the rent if the tenant stops paying the rent. Tenants – Finding a co-signer can certainly be a challenge, but fortunately, you have options. Parents like parents, good friends or even a co-signing service are all great choices for a co-signer. If you choose to use a relative or friend, the most common co-signers, there are a few things to keep in mind – this person must be financially stable enough to serve as a support for rent payment, and you should also have a good relationship with them, especially if you need it to fulfill their duty. This guide explains what a co-signer is, when someone can consider a co-signer when assessing an applicant, the pros and cons of being a co-signer in a lease, and how to review tenants and their co-signers. There are, of course, advantages to using it. With this form, you may be able to rent a property quickly instead of spending a lot of time and money trying to find a more financially secure tenant.
In addition, you have the additional security of two parties in case of a problem at the property. In such cases, they may ask a friend or relative to co-sign. This allows them to qualify for an apartment for which they may not be eligible. If a landlord decides to report one-time rent payments to a credit bureau, these could have a positive effect on the tenant`s credit history. No Nonsense Landlord points out that a co-signer does not help manage the risks associated with a tenant`s personal behavior, which is separate from financial risk. For example, a co-signer will not help solve problems such as noise complaints, reckless behavior, or shutting down public services. Nevertheless, you should carefully examine your customer. Conducting a credit check is essential to reduce the risk of non-payment – sometimes a co-signer of a lease is needed to protect your rental investment. Below, we`ll explain what a lease co-signer is, the pros and cons of adding a co-signer, and how to add a co-signer to a lease. If a co-signer wants to end the liability of a lease or tenancy, there can be several ways to exclude you from the contract: Now that you know more about when and why landlords use a co-signer addendum, let us help you understand how to create your own. Whether you are a landlord or a tenant, a co-signing agreement is useful in rental situations when there are questions about the tenant`s financial situation.
With the co-signed agreement signed by a financially secure third party, the tenant and landlord have a safeguard that agrees to assume financial responsibility for the lease if, for any reason, the primary tenant is unable to pay. As an independent owner, you have the opportunity to make the best decision for your rental property. If you decide to accept a co-signer, you need to make sure that you also perform a thorough tenant check on that person. This is one of the best ways to make sure your investment is protected. There may be circumstances in which a co-signer may not be the answer. If a tenant isn`t high enough to cover the rent, it`s likely that you`re running after both parties` rent, which means more work for you. If a person has a relevant criminal record, a co-signer may not mitigate the risk involved. The decision whether or not to rent to them ultimately depends on you, the landlord, but there is another way to make it possible to rent to tenants with a rocky past. You can use an addendum for co-signers. Because co-signers are legally responsible for ensuring rent is paid, landlords may feel safer renting to a particular tenant. Co-signers are often parents, relatives or even close friends of a tenant.
Ultimately, if you have other great candidates who wouldn`t need a co-signer, it can save you time and make sense to rent to another person who meets your rental criteria themselves. As with most co-signer situations, this form must be notarized when signed. The only two parties required to sign the addendum are the landlord and the co-signer, but it is recommended that the tenant be present to ensure that they fully understand the type of responsibility their co-signer assumes towards them. With TransUnion SmartMove, you can filter potential tenants and co-signers in minutes without having to store their personal information. SmartMove provides a credit report for tenants, a criminal history review of the tenancy, and a national eviction report so you have a more complete picture of their background. With reliable information provided by TransUnion, you can feel more confident in your decision to accept a tenant with a co-signer. The document that exists between you, the tenant and the co-signer only deals with financial and legal matters between the three parties. If the co-signer and the tenant wish to have another agreement between them to ensure that the responsibility is properly managed, this document should in no way involve you. Adding a co-signer to a lease protects your rents and increases the return on investment of your real estate investment. Understanding and establishing acceptance criteria for tenants early on will allow you to meet your guidelines and be clear with applicants while respecting fair housing laws.
If you recently added a co-signer to a lease, don`t forget to set up online rent payments to make them more convenient, faster, and safer for everyone. .