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What is a Guarantor?

Many young adults who are trying to rent an apartment in NYC will probably need a “guarantor” or a “lease guarantor.”

Plain and simple, a lease guarantor is someone who guarantees payment on the lease if it couldn’t be paid for some reason. It doesn’t need to be a relative, but it generally does need to be someone residing within close proximity, since rental agents want to make sure they can easily try and collect from the guarantor should the need arise.

Why are guarantors needed?

Since New York City apartment rentals are expensive and good ones are scarce, landlords and leasing agencies don’t want to waste time on potential renters who are considered “financially questionable.” They want proof of cash flow and plenty of it before they’ll rent to you. That’s where a guarantor comes in.

How do you know if you need a guarantor? A quick test is the financial one – the one that matters most to landlords and leasing agents: You must make 40 times the monthly rent.

Example:

If the apartment you want to rent costs $3,000/month, you would need to make a salary of $120,000 (3000 x 40 = 120,000).

Also, if you have any of the below, you will most likely need a guarantor:

  • No credit history or poor credit
  • Lack employment or rental history
  • Newly graduated from college
  • Non-resident in the U.S. to work or study

How do you find a guarantor?

Luckily, there are two ways to secure a guarantor.

One way is the old-fashioned way – your parents.  Friends and other family members can also act as your guarantor, but it is important to get their approval before you start the rental process. That’s because once you find an apartment you want to rent, they will need to sign paperwork, produce pay stubs and other financial documents such a tax returns that show they make at least 80 times annually the monthly rental price.  That’s right. That $3,000 apartment you want but can’t qualify for on your own will require your guarantor to show they make $240,000 a year!

The other option for securing a guarantor is to pay for one. Private equity and insurance firms have sprung up to fill this growing need of providing guarantees for renters who do not qualify for lease terms without backup. One of the biggest in New York is a company called Insurent. For about 80 percent of one month’s rent, Insurent will act as your guarantor as long as you have good credit history and earn about 28 percent times the monthly rent. Insurent has clearly sized up the need for this kind of service: Part of their marketing appeals to parents of would-be renters by spelling out the tedious steps the company can save them.

Regardless of whether you ask your parents to be your guarantor or you pay a private company to play that role, act fast and act before you find your dream apartment. In New York, it’s a long road to apartment bliss and having your financials in order is critical preparatory work.

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