You may have heard the terms co-signer and guarantor used in connection with your rental application, particularly if you don't meet the income requirements landlords expect for renters in New York City. Typically, landlords want to see a good credit score of around 700 and an income that’s at least 40 times the monthly rent in order to allow you to sign a lease on an apartment.
If you don’t meet these requirements, you may need someone else to step in to help you secure the apartment. This is because in order to reduce the risk of renting to someone with less than stellar credit, landlords ask you to have someone they can get payment from if you or your roommates get into financial trouble and can't pay the rent.
[Editor's note: A previous version of this post was published in November 2019. We are presenting it again with updated information for May 2022.]
So who is that someone? The terms co-signer and guarantor are often used interchangeably to describe this person, but there are some subtle differences when it comes to their obligations and rights.
A co-signer on a rental property usually refers to an individual who signs a lease on behalf of someone else, says Jeffery Geller, vice chairman of institutional lease guarantor Insurent Lease Guaranty (a Brick Underground sponsor). A co-signer is responsible for the rent the moment it is due.
"A co-signer is someone who agrees to share the responsibility of the property and the monthly payments, so basically, they are a tenant themselves,” says Becki Danchik, a broker with Coldwell Banker Warburg.
So a cosigner, theoretically, has the right to live in the apartment.
"A co-signer would be a tenant on the lease that would be fully liable under the lease, who would have occupancy rights,” says Jennifer Rozen, managing attorney at Rozen Law Group.
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However, when you’re trying to secure a rental in New York, having a guarantor is much more common, Danchik says. “A guarantor is a financially qualified individual or sometimes a company, who agrees to be held responsible if a tenant defaults on their monthly payments,” she says. So they are under an obligation to pay if the person on the agreement fails to do so.
“A guarantor typically isn’t named as a tenant so they can’t occupy the apartment. They are basically on the hook for rent and any damage that the tenants cause,” Rozen says.
Many renters look first to their parents or older relatives to serve as guarantors. Rozen usually advises against being a guarantor, especially if you are a parent and your adult child would be living with multiple roommates.
An alternative is to consider using institutional guarantor, a company that will be your guarantor for a fee. For example, for about 70 to 85 percent of one month's rent if you have U.S. credit, and 90 to 110 percent of one month's rent if you're foreign with no U.S. credit, Insurent Lease Guaranty can be your guarantor with far less strict income and employment requirements than most landlords.
The agreement will usually specify the guarantor is only on the hook once all legal remedies are exhausted but it's still important to read the definitions in the lease regardless of what they are called and what you think they mean.
Guarantors also come into play with student loans or mortgages. The lender doesn't reach out to the guarantor for monthly payments but will do so when and if the borrower defaults.
If you are weighing the risks of one over the other, a co-signer takes on more financial responsibility than a guarantor. That’s why the use of a guarantor is more common.