My retired parents want to rent an apartment and have asked me to be their lease guarantor. Should I do it? Could it impact my ability to get a mortgage?
Qualifying for a New York City rental is tough, and it’s even more challenging for retirees who are no longer earning a paycheck and need to meet a landlord’s income qualifications through other means. So if you’re thinking about being a guarantor for your parents, here’s what you should know.
First, you have to meet stringent financial requirements to qualify as a guarantor in NYC. Your income must be at least 80 times their monthly rent, your credit has to be solid, and you might also have to reside in the tri-state area.
The idea is that you can handle your financial obligations and pay their rent should they default, Cristina Chiarizia, director of closings at Maxwell Kates, previously told Brick.
Being a lease guarantor shouldn’t have a big impact on your credit score—but it will show up on your credit report. And your credit could be impacted negatively if your parents default on their rent, and you aren’t able to pay it either.
Another consideration is if you plan to apply for a mortgage in the near future. That’s because just like any other loan or debt, it might create an obstacle to getting a mortgage, says Melissa Cohn, regional vice president and mortgage banker at William Raveis Mortgage. For example, if you’re guaranteeing an apartment that costs $5,000 a month, that monthly rent will be considered your debt, making a direct impact on your approval, she says.
However, if you’re able to prove that your parents are the ones paying the monthly rent, a bank will likely exclude it from your mortgage application, Cohn says. Also, if you don’t plan on applying for a mortgage for a year or two, by that time, it will have fallen off your credit report and shouldn’t be an issue, she says.
You also have to consider the risks: If your parents fall on hard times and can’t pay their rent—you're the next one in line to make those payments.
Another option for your parents is to use an institutional guarantor like Insurent (a Brick Underground sponsor). To qualify for Insurent as a retiree, you must have cash assets that are a minimum of 50 times the gross monthly rent or social security and pension benefits that are 27.5 times the monthly rent, says Jeffrey Geller, founder and chief operating officer of the lease guaranty company. The average fee for a 12- to 14-month lease is between 75 and 90 percent of one month’s gross rent, he says.
So while being a guarantor for your retired parents shouldn’t have any big downsides (if you’re actually qualified), you should still consider the long-term impact.
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