Tuesday, August 17, 2010

Co-signing a lease,the debt to income ratio may change based on the landlord

I was with a client recently looking for a home for her son to rent.
Based on the landlord's requirements, the son didn't qualify on his own financially to rent the home so my client had to either sign as a guarantor or they had to find another home to rent.

The landlord said that financially his renter's income had to be 3 times the monthly rent and if the renter used a co-signer/guarantor the income of the
co-signer/guarantor had to be 4 times the monthly rent. Why? In addition to the
co-signer/guarantor's current expenses, he/she would now be legally bound to additional expenses on this other home if the renter was unable to pay the rent.

A co-signer/guarantor is taking on more debt so his/her debt to income ratio just increased. Similary,in a home purchase,when a buyer needs another person co-signs on the loan, the person co-signing is taking on a further obligation which will impact his/her credit/purchasing power the next time he/she is considering taking out a loan/refinancing/purchasing another home.

So a landlord might consider enhancing the rental qualifications when a tenant needs a co-signer. A person co-signing/being a guarantor should think it through whether taking on this additional financial obligation is going to prevent him/her from getting a loan in the near future that he or she would have qualified for (if he or she didn't take on being a co-signer/guarantor.

Thinking of buying,selling or renting a home? If you are renting,also consider if you could buy a home with the monthly rent you are paying.
Let me know because I am here to help.

Life is good!

Cell: 301-943-4370
Adam Bashein
Licensed in MD & DC
Weichert Realtors
7821 Tuckerman Lane
Potomac,MD 20854
Office: 301-718-4100
Desk: ext. 132