The Best Advice for Co-Signing: Think Twice

June 2nd, 2017
The Best Advice for Co-Signing: Think Twice

Many times, a landlord or property manager will require a co-signer for someone with poor or little to no credit history. While your first instinct may be to help a friend or family member in need, it is important to understand what is at stake when you co-sign for a property.

In addition to filling out an online rental application and being present in the landlord-tenant agreement, a co-signer is financially responsible for paying rent if the tenant is not able to.

tenant history

As a guarantor on the contract, you will face litigation by the landlord if the rent does not get in on time. With so much at stake, this is a very important decision that you need to be cautious about.

In addition to your financial flexibility, factors you need to think about when deciding if you should co-sign for a tenant include their tenant history, financial stability, and general reliability.

What to Consider Before Co-Signing

online rental application

The Worst Case Scenario

Prior to making a decision, you need to consider the worst-case scenario. If, for some reason, the tenant decides that they don’t want to pay rent anymore, you must pay the rent or face litigation and eviction. Above all, you need to be financially secure enough to pay rent for an apartment that isn’t yours. If you are unable to do this, don’t sign that online rental application.

Who Is the Tenant?

You can’t just co-sign for anyone. Just like a landlord thoroughly screens their tenants when collecting online rental applications, you need to "screen" the person you co-sign for. You should have a healthy relationship with them and they should be financially responsible and not prone to spontaneous spending sprees.

If you are willing to live with the worst case scenario but still aren’t sure if you should co-sign for a specific person, consider the following before signing your name on that online rental application:

Tenant History

Has this person been evicted before? Could you see this person causing damage to the property that you would end up having to pay for? If it is your child who has been living with you and is ready to move out, do you think that they are responsible enough for the upkeep of their own place?

These are all questions you should consider before co-signing to someone. You will be liable for any damage beyond normal wear and tear done to the property. On top of that, eviction is an absolute nightmarish process and it is the last thing you want to be involved in.

If you do not know the answers to the above questions, you probably do not know this person well enough to be their co-signer.

Living Situation

online rental application

Roommates pose the biggest risk to a co-signer - uncertainty. If you do not know the tenant’s roommates, you should think twice before co-signing.

If you are the only co-signing option, you need to get to know the roommates. Research their tenant history, talk to family members, and do your due diligence to make sure that they are reliable tenants. While this may seem like a lot of work, this is your money we’re talking about.

Financial Stability

One of the most important traits of the person you co-sign for is their financial stability. You really don’t want to have to be forced pay their rent.

As such, do they currently have a well-paying, secure job that looks like it will last them the term of the lease? In addition, are they responsible with their spending? If necessary, you should set up a spending agreement that sets strict guidelines about their spending habits.

How to Protect Yourself

tenant history

It is important to protect yourself in every way possible in case the tenant decides to stop paying rent against your wishes. Consult a lawyer and set up a legally binding agreement with that specifies what would happen should they not pay the rent.

You can also add some sort of collateral in the agreement, for instance their car. If the landlord is willing, you can also negotiate for some clauses in the landlord-tenant agreement that protect you in the event of a worst case scenario situation.

The Bottom Line

If you’re unsure at all, don’t do it. Co-signing a lease is a huge responsibility. On top of being financially secure, you need to 100 percent trust the tenant you co-sign for. To quote Murphy’s Law, "anything that can go wrong, will go wrong."

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