Financial Advice by Carmen Rita Wong
Q: I thought I had been making pretty great strides with my finances. I have been paying my bills on time, paying down my debt and have even been able to save a little money in the bank each month, but I recently tried to rent a new apartment and they requested that I have someone co-sign the lease for me. I have never encountered something like this before! What does having a co-signer actually entail and how can I get out of the situation of needing one?
A co-signer on any loan or lease becomes just as responsible as you for any and all payments. Yeesh! And though the best way to get out of needing a co-signer in your situation may be to find another apartment, you may not have to do that.
First, know that though your credit may be in great shape, a landlord uses other factors to decide if you’re a good tenant. Two other criteria are: What’s your income and, how much cash do you have saved up? Your potential landlord may feel that you don’t have enough cash in the bank if you lose your job, for example. (They usually like to see anywhere from three to nine months of rent, plus basic living expenses.) Also, after taxes, how much is your monthly rent compared to your monthly pay? If you’re looking at 50% of your after-tax income going toward rent, your landlord may not see that as leaving wiggle room for your other expenses.
There’s no need to try to assume things– you know where that gets you! Instead, pick up the phone and ask specifically why you need a co-signer. Once you have your answer, there may be other ways to satisfy their needs, for example, by getting a letter from your employer stating that you’re on contract for the year and/or that you’re a long-time, full-time employee, which means you may get severance pay if you are let go.
There are services out there that act as insurance for renters. In effect, they co-sign for you, but they cost a lot– usually a month and a half in rent. But instead of using a pricy service or bringing someone in to co-sign, make sure that you either can’t wait to move and save up more money or, instead, find a less expensive apartment or restrictive landlord. Whatever their reason, it’s good to take a long, hard look at it and see if there isn’t some useful truth in it. Usually, fixing the need for a co-signer is just a matter of time.
Carmen Rita Wong is the President and Founder of Malecon Productions. She is the former co-creator and host of the only national, daily personal finance television show, On the Money, on CNBC. Carmen was also the co-founder and former President of an all-female financial planning firm, is currently Assistant Industry Professor of Finance and Risk Engineering at NYU Polytech, a former editor at ‘MONEY’ magazine as well as a previous national advice columnist at ‘Good Housekeeping’, ‘Glamour’, ‘Latina’, ‘Essence’, and ‘Men’s Health’. Carmen also writes for ‘The New York Times’ and is the author of two books, her most recent, The Real Cost of Living. She has also written a novel based on her life and the lives of her first- and second-generation Latina friends, famous and not, to be released in 2015.