How to cosign a lease
Engaging in a lease is sometimes difficult.
Landlords always want to make sure that their next tenant has good credit, whether that prospective tenant is looking for an apartment or a commercial space.
In most cases, this will have an effect on the lease’s progress and can even delay it.
To speed up the process and avoid delays, the tenant may choose to have a cosigner on a lease to reassure the owner.
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Let’s take a closer look at how cosigned leases work and why they are important.
What is a cosigner?
Briefly, a cosigner is a person signing a loan or lease jointly with another person to guarantee payment.
In other words, it is a person who accepts legal and financial responsibility for a debt in the event that the primary borrower fails to repay a loan as agreed.
This is especially helpful when the tenant has been unable to secure a sufficient loan for a significant purchase or investment, such as an apartment lease or purchasing a car.
Whether it is the owner or the tenant, both parties find value in co-signing a lease.
Indeed, the owner will feel more comfortable renting their property with a lease cosigner acting as a guarantee in case of unforeseen circumstances (e.g. the tenant cannot pay the amounts due).
Likewise, having a cosigner allows the tenant to quickly secure the lease and access the property.
What are the benefits of having a lease cosigned?
One of the first things a landlord looks at before signing a lease is the financial situation of the future tenant and, more specifically, their credit history.
For example, if the tenant has a low credit score or has never had credit, there is little chance that the lease will be granted.
In this case, having a lease cosigned can unblock the situation. This procedure also has other advantages, especially for:
1. Ensuring the safety of your rental investment
When dealing with a tenant with a less-desirable credit score, having a second party ensures the rent payments will be paid.
2. A solution for college students or young renters
Cosigners are an excellent choice for rental properties in college towns or areas with younger renters because you will have a better chance of filling vacancies there.
Young roommates frequently require cosigners.
3. Safer than higher security deposits
Even though some people suggest increasing the security deposit to protect the investment from renters with poor credit, this may not always cover the loss caused by nonpayment of rent.
Most states have caps on the amount landlords can charge for a security deposit.
How to add a cosigner
The drafting of the document must be clear and precise. Indeed, in the event of nonpayment, the cosigner is liable under the contract.
Take your time selecting the cosigner for the lease and specifying the contract’s limitations.
Here are the steps to include a cosigner in your lease.
Communicate with the tenant
If you are a landlord, you should tell the tenant why you need a cosigner and their role.
Remind them that finding a guarantor is in their best interest as well as yours, ensuring rental payments and avoiding potential eviction in case of non-payment.
Check the assets of the cosigner
Once the tenant finds a cosigner, the owner should treat them like an additional tenant, ask him to fill out a rental application, and get a verification report to make sure they can afford to cosign.
Create the lease agreement
You can now draft the document, add both parties to the agreement, and specify the terms of the lease and respective responsibilities (security deposit, rent, fees, charges, etc.).
Get all parties’ signatures
Finally, get everyone involved to sign the rental agreement so that it becomes legally binding. Make sure that they both know when and how to pay the rent each month.
You can save time and make it easier for co-signers by electronically signing important documents with PandaDoc.
Who can be a cosigner?
Finding a cosigner can sometimes be difficult because it requires someone you can trust and who won’t let you down when you need them.
In most cases, tenants call on family members, relatives, or friends, but sometimes this is not enough. In this case, the tenant can use companies that offer cosigning services.
However, be careful with this type of service.
Cosigning companies charge a one-time, non-refundable flat fee based on a percentage of your rent after your lease application is approved.
The additional cost can be difficult to bear for a tenant who is not in a good financial situation.
Lastly, having someone cosign a lease contract should not hide the fact that it is, first and foremost, the tenant who must fulfill their financial obligations.
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You now have all the cards in hand to finalize your lease — whether you are a tenant looking to lease a place or a landlord wishing to rent out their property.