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Cosigner Lease Agreement: Landlord Guide To Rental Cosigners

https://rentprep.com/leasing-questions/rental-co-signer/



Working with tenants requiring or requesting a rental cosigner is not uncommon in most locations. Many landlords say it’s more common than not to work with multiple individuals on a lease and sometimes use a cosigner lease agreement.

Do you understand why and when to bring in a cosigner on leases? Cosigners can be a great way to ensure that your property will be intact when returned to you, but it’s not always the right choice. Sometimes, cosigning can lead to just as much hassle as continuing the search for a tenant who’s a better fit.


Understanding what a cosigner is, how to lease with a cosigner, and what the cosigner is responsible for is essential for success as a landlord. Keep reading to learn more about this specialty lease type and situation.


Table Of Contents On Cosigners For Leases

Cosigners are necessary for some lease agreements, particularly when an individual is a new or newly reformed renter. Work through the necessary steps with us to setting up an appropriate lease cosigner addendum today:

  • What Is A Rental Cosigner?

  • Who Can Be A Cosigner?

  • State Laws

  • Pros And Cons Of Cosigners

  • The Benefits

  • Potential Problems

  • The Secret To Cosigning Success: Screening

  • FAQs About Cosigners On Leases

  • What’s the difference between a cosigner and a guarantor?

  • Do I need to include the co-signer in our rental lease agreement?

  • Does cosigning a lease affect the cosigner’s credit?

  • Is a cosigner the same as a roommate?

  • Setting Up Cosigners For Rent Agreements

What Is A Rental Cosigner?


A rental cosigner is an individual that agrees to be responsible for covering rental payments if the tenant misses them. The cosigner is part of the lease agreement when signed with you at the start of a lease period. When landlords are worried about being able to collect rent on time, they may request a cosigner before agreeing to begin a tenancy.

Typically, a cosigner is not someone living at the rental unit, but there may be situations where this is true. Cosigners are often parents, siblings, or even a third party hired to provide this support.

Legally, the cosigner is responsible for everything the tenant is responsible for. Penalties and fees related to how the tenant uses the property could be passed on to the cosigner if the tenant falls through, so it’s important for cosigners to be thoroughly informed about what they are committing to.


Who Can Be A Cosigner?

While cosigners are typically family members or friends of the leasee, they can also be third-party guarantors hired to provide this service. The individual should have a strong financial background and credit and a high enough income to support the tenant if they fall behind on rent. Landlords may prefer that the consigner makes as much as 80 times the monthly rent.

A cosigner must agree to share personal financial information with the landlord, just as potential tenants do. You will likely screen the cosigner, so they must also agree to that. If a cosigner is uncomfortable with providing more than their word, you’d be in the right to move on.


State Laws

Before proceeding with any type of cosigner lease, make sure that you look up your state and local laws. There are state specifics on lease and cosigner agreements. These rules may influence who can be a cosigner, what can be included in a lease agreement, and other details that will influence how you move forward.


Pros And Cons Of Cosigners


Why exactly would you or your potential tenants be interested in cosigners? This process involves another individual in the rental process, so it can seem unappealing at face value. As with all rental decisions, however, there are both pros and cons to using this method.


The Benefits

Strong Financial Backing

Renting to tenants without a strong credit history can be scary, but you may still want to give the tenant a chance. In this case, requiring a cosigner allows the tenant to secure a home while you secure your investment. Limit your financial risk while renting by using cosigners when necessary.


Expand The Tenant Pool

Another reason to consider using cosigners on rental leases as needed is to expand your rental pool and fill more vacancies.

Some individuals, such as college students, haven’t had time to build their credit history. By allowing them a cosigner, you can fill a vacancy that might otherwise go unoccupied. This doesn’t just apply to college students. Those facing unemployment or medical issues may also benefit from having a cosigner involved in their tenancy.


Avoid Deposit Caps

Some states have very limited deposit caps for security deposits. If you would prefer to raise the security deposit for those with unsteady credit, you will not be able to in those areas. Instead, you could require a cosigner as a different type of guarantee for your investment security.


Potential Problems


Other Tenant Risks

Some landlords are tempted to accept risky tenants because a cosigner is involved, but there is more to consider than just financial risk. You shouldn’t rent to a tenant with bad credit if other red flags come up during the screening process. Screening doesn’t go entirely out the window just because you’re using a cosigner.


Flaky Cosigner

Cosigners are legally responsible for rent not paid by the tenant, but that doesn’t mean you’ll be able to get them to pay it. Rather than pursuing one individual, you could find yourself trying to track down both a tenant and their cosigner. This is a risk when using cosigners.


Additional Work

Renting with cosigners will take additional work. You’ll need to screen the cosigner in addition to the tenant, and you will also need to ensure that relevant staff is educated on how cosigners work. You will also need to prepare appropriate lease agreements and addendums for cosigning situations. A cosigner for rental application will also be helpful for screening purposes.


Specific Laws

There are many specific laws about how debt collection and rent payments must occur. If you do not communicate clearly or follow the letter of the law precisely, you could find yourself not being able to claim missing funds even if you have a cosigner on the lease. Learning the breadth of these laws in your area and consulting a real estate attorney as necessary is a must.


The Secret To Cosigning Success: Screening

Using a cosigner should act as a type of insurance when renting the property, but it can only act as such if you properly vet the cosigner and the tenant.

Screening both potential tenants and cosigners is a must. Cosigners are also responsible in the same way that you consider a tenant legally responsible for rent payments. That’s why you need to ensure they are a reliable, trustworthy party that will carry out their part of the lease agreement if necessary.

Screening can be difficult, but we’ve created the tools you need to make it easier. Through our complete screening services, you can get tenant background checks, credit reports, and other necessary records to assist you as you make your decision.

Get started with tenant screening at RentPrep today to ensure you choose the right tenants and that their cosigners are a responsible support system.


FAQs About Cosigners On Leases

Here are the top questions when it comes to allowing co-signers on a lease.


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

Two rental terms are often used interchangeably even though they have different meanings: cosigner vs. guarantor.

Technically speaking, a cosigner is an individual who has equal rights and responsibilities as the primary tenant. Two tenants living as roommates, for example, may be cosigners on a lease. Cosigners may or may not live in the unit depending on the specific terms, but they are equally responsible for the lease agreement.

A guarantor is someone on backup to pay rent if the tenant falls through. Should the tenant prove unable to make rent, the guarantor would be held responsible for covering that payment. They do not, however, have monthly payment requirements or rights to use the property. Often, landlords need to declare a tenant in default before the guarantor needs to pay.