Think Twice Before Co-Signing or Guaranteeing a Lease for Your Kids

Across the country, rent prices have moderated lately, providing some relief for recent college graduates embarking on their careers and seeking their own place for the first time.

The median U.S. asking rent fell 1% in April from a year earlier, to $1,625, the biggest decline since February 2024, according to a report from Redfin. That's $80 below the record high of $1,705, in August 2022.

Still, apartments in many markets remain difficult to afford, and even financially stable grads who have sufficient income may struggle to qualify.

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Along with evaluating a prospective tenant's earnings, landlords often check their credit, references and rental history. A young adult who has a thin credit record, for example, may fail the eligibility test.

Enter the Bank of Mom and Dad. Parents are often accustomed to signing on the dotted line and paying the bills for student housing, since college students typically have little or no income, and they may be eager to help their kids as they start their post-graduate lives, too.

But when the children are adults who need help qualifying for an apartment, parental assistance may take a different form: serving as a guarantor or co-signer of the lease.

"It's important for parents to know that this means they are liable for the lease in the event the child does not pay," says Chantel Bonneau Stewart, wealth management adviser and certified financial planner professional at Northwestern Mutual in San Diego.

That may be particularly concerning for parents who are approaching retirement and don't want to have the potential liability of paying off their child's rent, which can run $5,000 or more a month in high-cost cities such as New York or Boston.

So before you take on this responsibility, make sure you understand the terms and the risks.

Guarantor versus co-signer

Traditionally, the law differentiates between a guarantor and a co-signer. Co-signers are liable for the rent from day one. Co-signers also have the right to occupy the apartment.

Guarantors, on the other hand, have no right to occupancy and are liable only if the renter defaults and the landlord can't collect unpaid rent from them.

However, apartment documents are written in such a way today that there is no practical difference.

"From a financial standpoint, there is little distinction between co-signing a lease and guaranteeing a lease,” says Zachary D. Schorr, a real estate attorney in Los Angeles. "In either scenario, if the tenant breaches the lease – particularly through nonpayment of rent – the landlord typically has the right to pursue recovery directly from the co-signer or guarantor."

Schorr says that while legal principles might require a landlord to first seek relief against a tenant before pursuing the guarantor, most lease guarantees today waive that requirement and allow landlords to proceed directly against the guarantor without first suing or evicting the tenant.

"Standard leases, including ours, are drafted so that the guarantee is 'joint and several' with the tenant," says Michael H. Zaransky, managing principal of MZ Capital Partners in Northbrook, Illinois, an apartment developer and owner.

In other words, the guarantors and renters are each fully liable for the entire debt.

What does that mean for parents who are trying to help their kids with housing? Either guaranteeing or co-signing the lease comes with risk and financial exposure for unpaid rent.

Schorr says that given the choice, he would recommend guaranteeing rather than co-signing, only because a co-signer would be sued as part of the eviction action, while a guarantor would be separately pursued in a civil action for monetary damages.

That process is slower and more expensive, he says, so a landlord may hesitate to take on such a lawsuit.

Manage your risk

If you're planning to help your child get an apartment, here are some things you can do to protect yourself.

Have a frank talk up front. Make sure your child understands the risk you are taking and the implications if they breach the lease.

You know your child best; if they sometimes act irresponsibly, you should think twice before becoming a guarantor or co-signer.

If you have any doubts, set up a joint bank account for paying the rent, Stewart suggests. That way, you can monitor the account to make sure adequate funds are available to pay the rent.

Also, ask the landlord to send copies of bills or other communications to you as well as your child so that you are aware of any issues in real time.

Try to negotiate the guarantee to limit your exposure. Depending on the market, landlords might be willing to limit the guarantee to just your child's portion of the rent, says Debby Belt, a real estate agent and senior associate at Hammond Residential Real Estate in Chestnut Hill, Massachusetts.

Private landlords who own smaller buildings are more likely to negotiate, she says. Large institutional landlords are less likely to have any leeway.

Belt guaranteed the leases for all three of her daughters' first apartments. For one of her daughters, who was renting an apartment in the Boston area, the landlord was cooperative, and Belt was able to guarantee only her daughter's portion, not that of the other two roommates.

But when another daughter rented a two-bedroom apartment in Manhattan with a roommate for a total monthly payment of $5,000, the landlord wasn't so flexible.

Because the rental market was competitive, Belt couldn't negotiate a limitation to guarantee only her daughter's portion of the lease. "Having to guarantee for somebody else was very stressful," she says.

Look into alternatives. Ask whether the landlord will accept a higher security deposit in lieu of a guarantor or co-signer.

Or consider a product such as the rent coverage sold by TheGuarantors, a New York–based fintech company. This coverage protects landlords against defaults, which may encourage landlords to accept tenants who would not otherwise qualify.

The renter pays for the coverage for the lease, no matter the length, and the fee ranges from about half to just more than one full month's rent, depending on the amount of the rent, the extent of the coverage and the risk profile of the renter, according to Julien Bonneville, the company's founder and chief executive officer.

Get off the guarantee as soon as you can. Once a lease comes up for renewal and your child has a one-year track record of paying on time, they should be able to qualify on their own.

Prepare for the worst-case scenario. Make sure you have enough cash to cover the rent due in case your child fails to make a payment.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Renter's insurance can protect guarantors as well as tenants when the worst case scenario happens. Compare rates and coverage at Bankrate.

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