Buzz
Being a tenant is increasingly tough. Rents are soaring—even in North Dakota, where the state boasts the lowest average rent in the country at about $835 per month. Rent prices are so high that most individuals are now classified as “rent burdened,” meaning they are spending 30% or more of their income on rent.
It's already difficult enough to part with nearly a third of your monthly earnings just to have a place to live. But it becomes even more demanding with the rising number of landlords imposing income requirements, which expect your rent burden to not exceed one-third of your income. Essentially, these income criteria require renters to earn three times the amount of their rent to qualify for a lease. So, if your monthly rent is $1,000, you'll need to show that you make at least $3,000 a month, or $36,000 annually.
This can be incredibly disheartening when you know you can afford the rent but fall just short of meeting the income qualifications. If you find yourself in a situation where a landlord won’t make exceptions for that income requirement (or has concerns about other aspects of your finances, such as your credit score), what are your alternatives?
What is a rent guarantor?
One possibility is having a rent guarantor. A rent guarantor is someone who agrees to take on the responsibility of paying your rent if you fail to do so. This person typically resides with you in the apartment and is named on the lease, with the understanding that they are liable for the full rent payment if you default (unlike a roommate, who only covers their portion).
But what if you don't have anyone willing to take on this responsibility, or you're simply not interested in having a roommate? In that case, you could consider lease guarantor companies. These businesses will act as co-signers for your lease, assuring the landlord that your income, though slightly lacking, will suffice. If you miss a rent payment, the lease guarantor takes on the responsibility, allowing the landlord to rest easy.
While an individual can act as a lease guarantor, landlords generally require that the guarantor's income be 40 to 90 times the rent amount. For instance, if the rent is $1,000, the guarantor would need to prove an income between $40,000 and $90,000 to be eligible. This can make it difficult to find someone willing to take on this responsibility, so your best bet may be a lease guarantor company, or a co-signer service.
Paying for a co-signer
A co-signer service company essentially agrees to be your co-signer on the lease in return for a fee. If the landlord consents, they legally take on the responsibility to cover your rent if you fail to do so. In return, you pay them a fee, typically a percentage of your rent (for example, if the rent is $1,000 and the one-time fee is 10% of your annual rent, you’d need to pay $1,200 to have the guarantor sign on). You’ll pay this fee whether or not you ever miss a payment, as the service provided is their financial guarantee for you.
Some of the leading lease guarantor companies include The Guarantors, Insurent, and Leap. The best option for you will depend on your particular circumstances and which companies operate in your area—Insurent, for example, is only available in ten U.S. states and Washington D.C. Moreover, each rent co-signer service has its own financial criteria (typically based on your credit score) and fee structure.
However, if you're falling short of the income requirements for an apartment or facing other financial challenges that make a landlord hesitant, a co-signer service might be a helpful solution. That said, there are some potential downsides to consider:
Not always available. Not all landlords accept lease guarantors or may refuse to work with your preferred service provider.
Reimbursement. If you miss rent payments and the guarantor steps in, you will need to repay them, potentially with additional penalties.
Roommates. Some lease guarantor services offer co-signing per lease, meaning you only pay a single fee without involving others. Others may require all tenants to sign up.
On the flip side, a lease guarantor can not only help you secure the apartment you want but also keep your friends and family from becoming entangled in your financial commitments.
Is having a lease guarantor a good choice? If you have enough funds to cover the guarantor's fees, you might prefer to offer your prospective landlord a larger security deposit instead. This way, you could potentially reclaim the money when your lease ends, keeping the involvement of third parties at bay. However, if that's not an option, and you're certain you can meet the rent, and the landlord is agreeable, then paying the fees could be a reasonable option. If there's a strong need to secure a particular property rather than settling for a less costly one, opting for a lease guarantor could be worthwhile, especially since many companies provide additional services like security deposit replacement and renter's insurance.
