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What does it mean to cosign for an apartment?
If you have a friend or family member who has asked you to cosign for an apartment as a guarantor on a lease, you may be asking yourself exactly what that entails. And while you may want to help out your loved ones—or you’re asking someone to help you out—cosigning as a guarantor on a lease means taking on considerable responsibility.
Agreeing to be a co-signer can have an immensely positive impact on someone’s financial health and housing stability. Just make sure you understand what it all entails.
What is a cosigner on an apartment?
A cosigner is a third-party individual that agrees to be responsible for someone else’s lease if the main lessee becomes incapable of doing so. This person is often a parent, sibling, or close friend.
If you have cosigned someone’s lease for them, and they can no longer afford to make their rent payments, you will be legally bound to make the rent payments to satisfy the terms of the lease. The cosigner will also be financially responsible for any utilities included in the lease and damages to an apartment beyond normal wear and tear.
Why does my friend need a cosigner for their apartment?
Here are some common reasons that someone—your friend, you, a family member—may need a cosigner to be approved for an apartment.
Poor credit or lack of credit history
Landlords will do a credit check before renting to anyone, and if your friend has poor credit or no credit history at all, they will need a cosigner to help them get into an apartment.
Lack of income
Not working full-time, not making enough money, or being unable to show proof of income are all good reasons why a landlord will require a cosigner before leasing an apartment to someone.
Lack of rental history
If this is your friend’s first time trying to rent an apartment on their own, or perhaps they’ve rented but have not been on a lease and therefore lack any real proof of being a reliable renter, a landlord may require a cosigner.
An eviction record
If your friend has an eviction record on their rental history, then a landlord may not feel comfortable renting to this person without a cosigner backup plan.
5 Facts you should know before cosigning an apartment lease
- You will be 100% responsible for the rent.
As the cosigner on an apartment, you’re acting as a lease guarantor, i.e. you’re committing to being responsible for the rental payments if they are not made.
You should carefully consider whether the person asking you to co-sign is a financially responsible person and likely to find a way to always cover rent and any damage expenses. If they aren’t, will you be able to take on the burden of paying the rent along with all of your own bills?
- The cosigner’s credit history will be pulled.
A cosigner must complete a rental application; it’s essentially as like you are applying to live in the apartment yourself. Part of this application process involves a hard credit pull, which can negatively affect your credit score.
- Late payments can negatively affect your credit score.
If the landlord reports monthly rent payments to one or more credit bureaus, a late payment will become part of your credit history. Even if the landlord doesn’t report every month, if they have to send the account to collections, that will end up directly on your credit history.
- Cosigning may add to your debt-to-income ratio.
If the added debt responsibility is added to your credit history, it could negatively impact your debt-to-income ratio, which will hurt your credit score.
- Legal action may be taken against you.
Any court action taken against the renter will also be taken against you. Whether it be late rent payments or the cost of damages beyond normal wear and tear — you will be on the hook for it.
The consequences of such could include things like legal fees, wage garnishment, and a decreased credit score.
How to minimize risk if you do cosign on an apartment
All the risks aside, deciding to cosign and act as a lease guarantor might still be the right choice. Before you agree to sign on the dotted line, ask yourself these questions to protect yourself and make sure the person you are trying to help understands the seriousness of what you’re doing on their behalf.
Know their personal history
Before even considering anything else, make sure you understand who you would be cosigning for.
Do they have a history of quitting jobs or borrowing money and not paying it back? Are there any repeat lifestyle choices that may affect your friend’s ability to make good decisions? In other words, can you trust this person?
Does this person have a stable job?
Ask about their job. How long have they worked at the same job? Is it seasonal employment or year-round? Do they make enough money to afford the apartment with the money they are currently making?
If the answer is no to any of these questions, you probably shouldn’t cosign for them.
Will there also be a roommate on the lease?
If the answer is yes, that could seem great because your friend or relative will have help paying the rent, right? The tricky part: you are also taking on all of the risks of being a cosigner for an additional person, one that you may not know at all.
If the roommate doesn’t pay their half of the rent, you will be responsible for their half if your friend can’t make up the difference. So it’s important to know just as much about the roommate as you do about your friend.
What is your current financial situation?
Take a pause and consider your own situation. If the worst-case scenario actually happened, would you be able to pay the rent, some utilities, and any other fees? Do you have an adequate income or savings stashed away to take on this kind of responsibility?
How will becoming a cosigner impact your relationship with this person?
It’s natural to want to help out a friend or family member when we can, especially when helping them means putting a roof over their head. But if you end up being responsible for their rent, it could create problems.
If you’re the lease guarantor, and they stop paying rent, you may feel bitterness at having your finances put into peril because someone you trusted also put you at risk. That dynamic can have a lasting impact on your relationship.
If you aren’t feeling comfortable becoming a cosigner, don’t do it out of a sense of guilt or obligation because that can also lead to resentment on your part. Let your friend know how you’re feeling and tell them gently but firmly, ‘no.’
I don’t want to cosign, but I want to help my friend. What else can I do?
If you don’t feel comfortable becoming a cosigner for your friend, you should refer them to a lease guarantor company. Lease guarantor companies are similar to cosigners in that they guarantee that the landlord will be reimbursed for defaulted rent payments without the liability that goes with being a cosigner.
In short, if the renter defaults on their lease, the lease guarantor company pays the rent, but the renter is legally obligated to repay the guarantor company any money disbursed to the landlord.
Read our article about lease guarantor products to learn more.
Frequently asked questions
Is cosigning for an apartment bad?
It’s not necessarily bad, but it comes with risks. The important thing to evaluate is how trustworthy the person you are cosigning for actually is, what their level of financial responsibility is, and if you are financially secure enough to handle being responsible for the rent.
What if I cosign and there is a roommate? Am I responsible for that person too?
Yes, you are assuming responsibility for everyone on the lease. If your friend’s roommate fails to pay their half of the rent and your friend can’t cover it, you’ll be responsible for the roommate’s half of the rent.
If I cosign and the rent is a few days late, will that affect my credit report too?
In most cases, a few days late on rent isn’t going to show up on your credit history. There is usually a five-day grace period for rent payments before a landlord would report the rent as late, and not all landlords report late rent immediately (if at all) to a credit bureau. It’s best to ask the landlord upfront about how they handle late payments before agreeing to cosign.
My partner just asked me to cosign, should I?
Adding financial obligations to any relationship risks creating a strain on it. Suppose you are in a serious relationship and have weighed the risks and benefits of cosigning. In that case, the decisions should ultimately rest on whether you believe that person is responsible and won’t leave you stuck paying their rent or putting your good credit on the line.
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