If you’ve started your off-campus housing search, you may have heard property managers say that they will require a personal guarantee on the lease. While this may sound strange, it is a common practice for most property owners and property management companies.
What is a Personal Guarantee?
A personal guarantee means that the guarantor is ultimately responsible for the lease. You can think of a guarantor similarly to a cosigner on a loan. When your personal credit isn’t strong enough for the amount you’re borrowing, a lender will ask for a cosigner who has stronger credit and enough assets to easily repay the loan. This ensures that if the borrower is not able to pay back the loan, there is someone else who can.
But, if you’re a student without much credit history or proven income, you may need a guarantor to guarantee the lease on your behalf. For most college students, parents are required to guarantee the lease for their son or daughter, unless the child can show that their income can easily cover the rental installments. The amount of income required varies property by property.
If your parent guarantees the lease, this means that if you do not pay the rent and associated costs such as utilities, or if you violate the terms of the lease, the building owner can hold your parents financially responsible for the outstanding charges.
Should My Parents Guarantee My Lease?
If you’re not sure if your parents should guarantee your lease or not, here are a few things to consider.
- Will you have a roommate(s)? If you’re going to have roommates, the personal guarantee can be tricky. What happens if your parents guarantee the lease, but your roommate moves out without paying everything they owe? If this happens, your parents will be responsible for your roommate’s rent, since they are the ones who guaranteed the lease. Make sure that you talk through this scenario upfront, and protect yourself as much as possible in the case of default. Sometimes the property owner will allow more than one guarantor, but it really varies by property. Each has their own rules and requirements. Either way, it is worth asking if they’ll consider allowing more than one guarantor.
- Does the property offer an individual lease? In some cases, student housing properties offer individual leases to protect against exactly the scenario above. Make sure to ask the property manager if this is an option before you sign the lease. With an individual lease, you’re protected if your roommate defaults on their portion of the rent or violates the lease terms.
- What is required of the guarantor? Find out exactly what is required for the guarantor. For example, sometimes properties require that the guarantor lives in the same state as the property that they’re guaranteeing. Also, ask about credit check requirements. How will the property manager determine if the guarantor is acceptable to guarantee the lease?
Now that you’ve learned a little more about a personal guarantee, hopefully, you’re ready for the conversation with your parents and your roommates, and you’re one step closer to finding the perfect off-campus apartment.