Not every great applicant checks every box–this is where co-signers for rentals can be helpful. Whether an applicant has a limited rental history, thin credit, or is a recent graduate just starting out, a qualified co-signer can help them qualify for housing without compromising your standards. Today, we’ll discuss what co-signers are, when it makes sense to allow them, and the pros and cons.
What Is a Rental Co-Signer?
A co-signer for a rental property is an individual who agrees to be responsible for rent payments if the tenant fails to make them. If you’re evaluating co-signers as part of your Austin property management solutions, this role can help strong applicants with little credit or rental history.
Typically, this individual does not live at the property, but is still listed in the lease agreement at the start of the lease period. Co-signers for rentals are generally parents, siblings, or other reliable family members who can provide support.
Legally, (and depending on your lease agreement), a co-signer is responsible for everything a tenant would be. For instance, penalties or fees related to the rental property may be passed on to the co-signer if the tenant doesn’t take responsibility. So, it’s crucial that they are informed of their commitments before signing.
Who Can Be a Co-Signer?
While co-signers are usually family members or friends, they can also be third-party guarantors hired to provide this service. Regardless of who it is, they should have a strong financial background and a good credit history. With that, their income must be sufficient to support the tenant if they fall behind on rent. Some landlords even require the co-signer to make as much as 80 times the monthly rent.
Pros of Accepting Co-Signers for Rentals
Whether you accept co-signers is up to you as the landlord, but it’s worth noting that there are a few advantages that can help improve cash flow and reduce vacancies. Here are some of the benefits of accepting co-signers for rentals.
Avoid Missed Payments
Expand Your Tenant Pool
Lower Vacancy Time
Avoid Missed Payments
One of the main pros, and why many landlords allow co-signers for rentals, is that they lead to fewer late or missed payments. Since the co-signer is equally liable for rent, fees, and damages, tenants tend to prioritize rent payments. That said, if a default does occur, you have an additional option to pursue, which means you don’t miss out on any income for that month.
Expand Your Tenant Pool
Co-signers can help create a larger pool of potential renters. After all, there may be some strong applicants who don’t have much of a credit or rental history to show for themselves. So, if landlords allow it, they can open the door for more prospective tenants without loosening their criteria.
Lower Vacancy Time
When you allow co-signers, that means you can approve applicants faster, which means fewer days sitting vacant. With co-signers as an option, applications that you’re iffy about can be resolved quickly without restarting the marketing process or lowering rent prices. This means you’ll have shorter turnarounds, a steady occupancy rate, and lower spending on marketing efforts.
Cons and Risks to Watch For
While there are plenty of benefits to accepting co-signers, there are also some risks to pay attention to. Here are some of the reasons landlords may decide not to accept co-signers for rentals.
Longer Screening Process
Risk of a Flaky Co-Signer
Rules and Regulations
Longer Screening Process
Allowing a co-signer adds extra steps, since you’ll also have to do a separate application, income verification, credit check, and agreement. This can make the approval process slower, leaving your property vacant for longer. However, there are ways to mitigate this, like having a standardized checklist, e-signatures, and requiring documents to be turned in within 24 to 48 hours.
Risk of a Flaky Co-Signer
Just because a person has a qualifying income and credit history doesn’t mean they’ll be a good co-signer. They may be hard to reach, unwilling to uphold their obligations, or too financially stressed to help when issues arise. If you’re worried about this, you can always tighten your requirements or expectations for a co-signer.
Rules and Regulations
Fair housing and local laws may limit how you can apply co-signer requirements. For instance, you must be consistent with your criteria to avoid claims of discrimination. Along with that, some jurisdictions may restrict deposit alternatives, credit reporting, or collections language. To avoid running into any issues, you may want to review your legal documents with an attorney.
When a Co-Signer Makes Sense
Allowing co-signers for rentals can be great, but it may not always make the most sense. For instance, it’s really only beneficial if the applicant is overall strong but has a small gap that can be closed with a co-signer.
If they meet all the requirements but don’t have an extensive credit history, or this is their first rental experience, a co-signer can help them get approved. However, if they don’t meet your income criteria or have prior evictions, you may want to steer clear entirely, even if they have a willing and reliable co-signer.
How to Set a Strong Co-Signer Policy
If you decide to allow co-signers for rental properties, it’s essential to have a firm, consistent policy. To ensure fairness for all renters, landlords should include the following items in the rental application process.
Clear Eligibility Rules: Make it clear when co-signers are allowed or required and when they’re not, and apply these rules to every applicant to avoid inconsistencies.
Higher Approval Standards: Hold co-signers to stricter requirements, like verifiable income of 5x rent, 720+ credit score, and DTI under 35%, to reduce risk.
Identity Verification: Require applicants and co-signers to provide a government ID, SSN, and bank statements, so you can do your due diligence.
Set Fair Policies With Professional Property Management
Allowing co-signers for rentals can expand your tenant pool, help qualified tenants find housing, and ensure you don’t miss out on any income from missed payments. However, it’s important to decide when to allow co-signers, set expectations for guarantors, and effectively manage these relationships.
Luckily, this is where professional property management comes in. When you work with a team like Stone Oak Management, you don’t have to worry about the day-to-day tasks of running a rental business–we’ve got it covered. Contact us today to learn more about our comprehensive rental management services.
