Understanding Co-Signers: Evaluation Tips for Landlords
A co-signer is someone who signs a tenancy agreement alongside the primary tenant. Co-signers are often needed in situations where the tenant doesn’t have sufficient rental history or has a low credit score. A co-signer’s main responsibility is that they are contractually obligated to pay rent and any other fees if the renter fails to do so. Below, we’ll discuss specific factors a landlord should look for when reviewing tenant applications that have a co-signer.
Creditworthiness
A co-signer needs to have a good credit score and be financially stable enough to prove that they can take on any monetary obligations that may arise. These individuals act as a backup plan or an additional layer of security for both the tenant and landlord. They are legally required to fulfill any financial responsibilities that the primary applicant cannot meet, so make sure the co-signer understands these commitments along with the associated risks. Late payments could affect the credit score of both the tenant and the co-signer and may impact their ability to obtain credit in the future. Ensure that both parties are aware of the risks and responsibilities they are taking on before signing the lease agreement.
Employment Status
Current employment status, as well as how long a co-signer has been employed with their current employer, can be significant indicators of their financial stability. As a landlord, you can get a good sense of this by asking a co-signer for recent pay stubs and/or an employment verification letter. An employment verification letter is a formal letter from the co-signer’s employer that confirms their position, duration of employment, and income level.
Rental History
Examining the co-signer’s rental history offers insight into their experience as tenants. A co-signer that has a good rental history will be more likely to understand tenant responsibilities and the importance of paying rent on time. Asking a co-signer for copies of previous rental agreements they have signed and/or references from previous landlords can demonstrate their reputability as a tenant.
Communication
Clear and open communication channels are important not only between the landlord and the prospective tenant but also with the co-signer. As the secondary point of contact in case of issues or emergencies, the co-signer must be willing to make themselves available if there is a significant issue or emergency and respond to communication in a timely manner.
Legal Obligations
Clearly communicate the legal obligations both the prospective tenant and the co-signer will each have. The agreement should clearly outline specific details for the tenant as well as the co-signer, indicating their responsibilities and potential triggers or events that will affect the co-signer, such as in the case of late or missed rent agreements, damage to the property, or other scenarios. Incorporate exit clauses to relieve the co-signer from their obligations, if necessary, within a separate agreement for the co-signer. All documents pertaining to the lease should be signed by both individuals and kept on file in the case of a dispute, emergency, or future reference.
Relationship
Consider the relationship between the primary tenant and the co-signer. Commonly, tenants will opt to use their family member or close friend as their co-signer, but anything more distant may be risky. Ensure that the renter and the co-signer have a strong and trusting relationship before offering a lease agreement.
Verify All Information
All of the above factors should be confirmed through additional documentation when needed. Some landlords may choose to treat the co-signer like the primary tenant and conduct a full review. Use a legal piece of photo identification – such as a passport or driver’s license – to prove the person’s identity. Pay stubs and employers can confirm employment status and financial stability, and previous landlords can confirm rental history. Double-check with local laws and regulations to determine what other additional information you can ask for.