I have some applicants with low income, but they say their mom has good income and can cosign. Should I allow cosigners?
if everything is else looks good you can accept them with additional criteria such as:
- cosigners income must be 2 times what you require of a regular applicant.
- credit check on co signer
- verify paystubs of cosigner
If the applicant is a student (I invest in a college town) then I will allow a "personal guarantor" which means they guarantee the payment of rent and any other obligations but are not given automatic access to the property. I check their income to make sure they are able to pay their own bills plus the rent for the applicant.
I had one fellow in his late 20's who brought mom along to see the apartment. He was living with her and not going anywhere in life, she wanted to help him move out so she signed on as a personal guarantor. She and the tenant's father were going to each pay 1/3 of the rent leaving 1/3 up to him. I wasn't too keen the whole arrangement but it was the first time I had a vacancy to fill and an empty apartment- I had signed leases for all other apartments before they were even vacant. Anyways, I should have taken the inability to support himself at that age as a warming sign about his maturity level. Worst tenant ever even with rent being paid on time, ended up with his girlfriend kicking my husband in the chest on the day they were supposed to be out. So long story short, if they can't pay the rent by themselves and don't have a legitimate need for support from family, they don't qualify.
I don't, and recently had a few apply for one of my property that requested listing a grantor. I only have two properties and really don't want to get into offering it on both, so I won't on either. If I offer it on one of them, I will have to continue to do so for both in order to fend off discrimination issues.
We also do low income, and we do ask about and explore co-signers if the applicant is borderline or a reason we can't verify their info. Normally the tenant doesn't have any credit to protect, but the co-applicant does. Have them fill out an application and run them as if they are a tenant, and add a co-sign agreement. Have them at signing so they understand all the expectations and that they are ultimately responsible.
We've been burned once - http://www.biggerpockets.com/blogs/4445/blog_posts...
But we are in a situation right now where the dad is paying for all of his daughters financial shortfalls.
We only accept a co-signer if the tenant is a) a minor or b) developmentally disabled. Otherwise we use guarantors primarily because a guarantor has the obligation to pay (guarantee) unpaid amounts, but does not have tenancy rights.
One of my tenants is a married man in his forties with a wife and two kids. He had a hard luck story and a solid guarantor. I said he would be trouble but my wife, who is the softy, wanted to accept them so we did. The honeymoon lasted maybe a year. The last year it's been chasing down late rent every month. Never again.
We do, but the guarantor criteria is much higher. No one has had a guarantor that met our criteria yet.
@Kimberly H. Was curious what your criteria is for a guarantor and how you would screen them? Criminal check? Just like a applicant...
I too would be interested in how @Kimberly H. screens her guarantors and why more rigorously than an applicant.
We screen our guarantors to the same fiscal standard as an applicant, but are less likely to run a criminal check on a guarantor since they do not have rights of access to the property.
Having a cosigner to also chase down if rent isn't paid is more work, so the cosigner better really be able to pay rent on a place they don't live in, plus the place they do live in. We do all the same screening but require they have a higher credit score and income and they have to be located in state.
I haven't had good luck my tenants that had cosigners. I have accepted this situation about 6 different times and each time the tenant has unraveled and fell apart. I will try it again.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing