Do you plan on moving to NYC? Whether it be for a job or just to make a big life change, there is one thing that will become crucial when finding somewhere to live: guarantor insurance. While this used to be primarily a “New York thing”, other major cities in the United States are starting to require this kind of insurance policy as well.
Many first-time renters are often confused and frustrated regarding this requirement. That's why we’ve put together a list of frequently asked questions and answers to help you better understand what guarantor insurance is, why it's necessary, and who needs one.
What Is Guarantor Insurance?
Before we talk about guarantor insurance, let's first talk about what a “guarantor” is. A guarantor is someone who is willing to cosign on an application, making them responsible for any debt that is left unpaid. It is like a co-signer when you apply for a mortgage or a car loan.
Therefore, guarantor insurance for rent is an added layer of protection for the landlord in case of default by the tenant. It takes care of unpaid rent and may also cover any damage done to the property during the tenant’s stay.
Who Needs Guarantor Insurance?
It's no secret that renting a place in New York City is expensive. It's not easy to find an apartment that's affordable, not to mention clean and livable. It's even harder if you are an international student or recent grad who doesn't have a full-time job.
When you finally find an apartment, the added requirement of a guarantor insurance can make the process harder. But does everyone need guarantor insurance? Here are the different scenarios where a guarantor insurance will be required.
1. Your Income Is Not High Enough
In NYC, landlords often require that your annual salary is at least 40 times the cost of your monthly rent or proof that you have savings equal to that amount. For instance, if the rent is $2,500 a month, then your annual salary or savings should be at least $100,000. If this is not the case, you will be required to get guarantor insurance.
2. You Have Poor or No Credit Score
Even if you are earning way above the required amount, you may still be required to get guarantor insurance if your credit score is low or you have no credit history. This is an added guarantee that you will be able to make your payments.
Nowadays, however, even for those with good credit scores, guarantor insurance may still be necessary especially when rental prices are so high like in New York City that the landlord wants some sort of protection against default by the tenant.
3. You Are Not a Citizen of the US
International employees or students looking to rent in New York City are required to get guarantor insurance even if they have high-paying jobs. This is because it will be difficult for the landlord or mortgage company to collect from an international person in case of default by the tenant.
4. It Is a Requirement of the Landlord
In many cases, guarantor insurance is a non-negotiable requirement set by landlords, no matter how much you earn or what your credit history is.
Where Can I Find a Guarantor for My Rent?
If your prospective landlord is requiring guarantor insurance, you might be wondering how to get one. Who can you get as your guarantor for rent purposes? Many tenants usually have these two options:
Friends or Family
Students and newly grads who move to New York City often turn to their friends and family to be their guarantor. You could, of course, ask your parents, siblings, family friend, or relative to pitch in for you to be your guarantor.
However, you have to keep in mind that your guarantor must make enough money to co-sign with you. The usual requirement is that the person has to be making an annual salary of 80 to 100 times the cost of your monthly rent to become your guarantor. You also have to get their trust and consent that they are willing to be your guarantor.
Guarantor Insurance Companies
Let's face it – not everyone has a rich mom or billionaire brother willing to guarantee a pricey apartment in the Upper East Side. And in a lot of cases, it is not easy to convince family members who have their own financial responsibilities to guarantee your rent in such an expensive city. This is where guarantor insurance companies become an option.
Guarantor insurance companies are third-party guarantors offering rental guarantor services. These companies can guarantee your rent in case you default on your payments for a fee. This is a great solution if you don't have a family or friend who can be your guarantor.
Some landlords will already have preferred companies they are working with and may not accept all guarantor insurance companies. So, it is best to ask the landlord if they have any preference or limitations before signing up with a guarantor insurance company.
How Does Guarantor Insurance Work?
When getting a guarantor insurance, you need to pay a certain fee charged by the company. The amount of the fee will vary depending on different factors, but it is usually more or less the cost of a month's rent. Paying this fee gets you your guarantor insurance which can help you qualify for the apartment you are eyeing.
What happens if you miss your rent payment? The main purpose of a guarantor insurance is to cover missed rent payments. Therefore, in any case where you fail to pay your rent, the guarantor insurance company will pay the landlord.
Does that mean you don't need to pay anyone for the missed rent? No. having a guarantor insurance does not remove your financial responsibility. Your debt from the missed rent payment is only transferred to the guarantor insurance company. In short, you now owe the insurance company the rent money and would have to pay this to them.
How Can I Qualify for Guarantor Insurance?
While the requirements to qualify for a guarantor insurance are less stringent than qualifying for the apartment itself, there are still some parameters that may hinder you from getting one.
Here are some of the common requirements set by guarantor insurance companies:
- FICO credit score of not less than 630
- Proof of annual income that is at least 27 times the cost of the monthly rent
- If not employed / no credit history, cash savings of at least 50 times the cost of the monthly rent
How Much Does Guarantor Insurance Cost?
The usual NYC guarantor service cost can range from 4.75% to up to 10% of the cost of your annual rent. If your annual rent is $36,000, a company charging you 4.75% of that amount means you will have to pay a fee of $1,710 for guarantor insurance.
Some companies charge based on the monthly rent cost, usually 50% to 110% of the monthly rent. For example, if your rent costs $3,000 a month, a company charging you 60% of that amount means you will pay $1,800 for guarantor insurance.
The rate you will pay the insurance company will depend on which one you choose. There are now many companies offering this service so it will not hurt to shop around to get the best deal. You have to remember to check with your landlord first if they accept a certain company as a guarantor.
Which Are the Best Guarantor Insurance Companies?
If you're convinced that getting a guarantor insurance company is the most ideal option for you, the next step will be finding the best one out there. There are many companies offering guarantor insurance and this is actually a good thing as you get many choices.
We will list down some of the most popular guarantor insurance providers so you can quickly check them out. These companies will have different terms, rates, and offerings.
- The Guarantors – Offers rent guarantee and security deposit replacement services. Go to the website to submit the documents and requirements which only takes minutes to complete. Approvals can take up to 24 hours.
- Leap – For guarantor insurance, you will be required to pay a one-time premium fee to be qualified for a lease. The website claims that applications can be completed in 5 minutes through their app. No security deposit replacement.
- Insurent – Very popular but only available for 725,000 units across NY, MA, NJ, VA, CA, MD, IL, NV, FL, and DC. You have to check if your landlord accepts Insurent.
- Jetty – Available in 40+ states but in partner properties only.
- Liberty Rent – Great option for rejected applicants and people with poor credit. Application is not free and costs $35.
- One App – No fee to apply but you have to ask the landlord if they accept the company as your guarantor.
Get Guarantor Insurance for Rent
If you are a first-time renter in a big city, you might be overwhelmed when it comes to getting all the requirements to find a place to rent. The good news is that when it comes to getting guarantor insurance, there are now companies that can make the process easier for you.
A quick search on the internet will show you companies offering this service and you can easily compare rates on their different offerings. Just remember to check with your landlord before signing up with a company. This way, you can have peace of mind knowing that they will accept the insurance from the guarantor provider you choose.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
