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.
In many cases a landlord may require a renter to provide additional 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 and highlight a few ways you can overcome hurdles to qualify for your dream apartment.
What is a guarantor?
A guarantor is a responsible party (which is a parent in most instances) that signs on to 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 it has 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.
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 FICO score) - (some landlords may accept your international credit history. Learn more)
Low credit score
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
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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 the 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, the recent changes in rent reform (if you haven’t heard about rent reform, our partner TheGuarantors break it down here) 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 upfront, this option no longer remains.
Don’t worry, you still have options!
Fintech companies such as Nova Credit partner TheGuarantors can act as a 3rd 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 small premium (which is usually less than one month’s rent) to secure a guarantee.
Other requirements can include: providing income documentation that is 27x the rent, a credit score north of 630, providing cash collateral, and/or a relative that makes 45x the rent or 75x the rent in liquid assets (this person does not have to be a U.S. citizen or live in the states). If approved, the landlord can sleep easy knowing 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.
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. Laws are changing and companies like TheGuarantors can help bridge the gap between renters and landlords.
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