Qualifying for an apartment is a test in and of itself. In a landlord-driven market, where demand outweighs supply, many renters searching for their dream apartment have no doubt felt the pang of rejection. In most major cities, qualification standards are strict. Poor (or no) credit, little savings, or a questionable relationship with your previous landlord can hinder an apartment search. Fortunately, in the age of innovative financial and technology solutions, getting the apartment you most desire isn’t necessarily unrealistic.
In many cases a landlord may require a renter to provide more information, or complete additional steps prior to approval. Often times, this means finding a guarantor. We understand that navigating this can be stressful, so we’ve broken down everything you need to know about the process.
So, what is a guarantor?
A guarantor is a responsible party (which is a parent in most instances) that signs the lease and agrees to “take on,” or assume, the obligations set forth under the lease, most notably the payment of rent. This guarantee allows the landlord to sleep easy at night knowing they have the protection of a credit-worthy third party without having to worry about renter insolvency. A guarantor is usually the additional piece needed to secure the apartment you desire if you struggle to qualify on your own.
When does a renter need a guarantor?
There are many situations that a landlord may ask for a guarantor and depending on your location, financial situation, or credit history, this may vary. Listed below are some scenarios that may require an aspiring renter to find a guarantor:
Non-U.S. resident or international student (i.e., no credit/FICO score) - (some landlords may accept your international credit history)
Low credit score or thin credit
Limited available funds or lack of consistent employment income
Unconventional source of income (i.e., non-liquid)
Perceived failure to meet the qualification requirements but the ability to fulfill rent obligations
What are qualification standards?
Qualification standards are simply the minimum requirements a renter must meet, usually set by the landlord or property manager, to get approved in a certain building. These differ tremendously from city to city and even from landlord to landlord. Each situation is unique and based on vacancy rates as well as chance of default, depending on the landlord’s requirements.
Take New York for example. Most property managers require prospective renters to make 40x the rent in annual income. In the event a renter fails to meet that requirement, where are they to turn? The most common solution is to turn to a third party guarantor. Guarantors in New York are usually required to provide documentation evidencing their liquidity (usually 80x the rent) and willingness to step into the shoes of the renter upon default. If these requirements are met, business as usual. However, there may be a number of reasons why someone may not agree to act as a third party guarantor (not enough liquid assets, not willing to take on that risk, not willing to sign a lengthy contract). This can significantly hinder the application process. In addition to these looming obstacles, recent changes in rent reform have stifled the residential real estate market and made life extremely difficult for property managers across the state. Where landlords used to have the ability to accept multiple months of rent as security, or even prepaid up front, this option no longer remains.
Don’t worry, you still have options.
Companies such as TheGuarantors can act as a renter's third party guarantor. TheGuarantors use an in-depth underwriting process that examines each candidate and their unique risk profile. After completing the online application, the renter pays a premium to secure a guarantee. If approved, the landlord knows they have insurance protection in the event of renter default. And by purchasing the policy, a renter gains access to an apartment that would otherwise not be possible without a 3rd party guarantor. This doesn't mean you don't have to continue to pay your rent, though. If you default on your lease and owe your landlord money, you will have to reimburse the insurance company for what was paid on your behalf.
Do you think you’ll need a guarantor?
Once you apply to your desired apartment, your leasing agent will let you know if you need a guarantor. Keep in mind that TheGuarantors is an option.
Laws are changing and companies like TheGuarantors have been eager to bridge the gap between renters and landlords, and through innovation, they’ve created a process that eases the tension for all parties involved.