By BEN POPKEN
One is an 80-year-old woman with over a million dollars in the bank. One is a guy fighting a burglary charge because he kicked in his girlfriend's door to grab his belongings after a bad breakup. The third is a soldier who deployed and then had four eviction notices filed against him by an inexperienced employee in his landlord's office. What do they have in common? None of these people can get an apartment on their own without help from a co-signer.
For some young people in expensive cities, especially those with sub-Wall Street salaries, getting a co-signer on a lease is a kind of rite of passage. But whether for economic reasons or because of blips on their credit histories, many older adults find they still have to clear this hurdle, especially as landlords grow more diligent about background checks. (That 80-year-old, for example, has no provable income, which makes her look risky.) And for many people in such situations, asking a friend or family member for help is "tantamount to asking to borrow their toothbrush," as Frank Jakubaitis puts it. Jakubaitis is the general manager of WeCosign.com, one of several services that, for a fee, will co-sign your apartment lease for you. The question is whether they're worth the price.
When would-be tenants encounter landlords who ask for a co-signer, these services kick in. They offer to guarantee the lease for a contractual period of time; in the event of a default, they pay the landlord for the rest of the lease term. There are a number of different sites that offer these services, but three of the largest are WeCosign.com, Insurent.com, and Co-Signer.com.
The privately held companies decline to give annual revenue figures, but there certainly seems to be a market for their services. WeCosign says it has conducted 12,000 transactions since 2007 and represents more than 18 million individual rental units across the country. Insurent, started in 2008, says it has guaranteed "thousands" of leases and has "hundreds of millions" in rent exposure guaranteed in New York City, where it's accepted at over 1,200 buildings. (Insurent's clients include the 80-year-old described above.) WeCosign's Jakubaitis says he's seen 25% growth this July over last year, which he attributes to more people finding themselves in a "quagmire" and lacking the appropriate credit.
While getting a co-signature from Mom may cost you emotionally, these services ask for a fairly hefty financial commitment from their clients. WeCosign.com says it asks for 12 monthly payments, each equal to 10% of the monthly rent. Higher risk applicants may be asked to pay six months in advance. There is also a $100 sign-up fee, refundable if they can't get you a signed lease.
Insurent, which operates only in New York City but has plans to expand to other major U.S. cities in the next 12 to 18 months, says it asks for 75% to 95% of one month's rent, due as a lump-sum payment just prior to the lease signing, but there's no application fee. The initial payment is higher -- 110% of one month's rent -- for those without U.S.-based credit histories.
Co-Signer.com says it asks for 6% of the annual rent for a 90-day lease guarantee, or 10% of your annual rent for a 180-day guarantee, and the fee is due as a lump sum. There is also a $75 credit and background check and a $50 processing fee.
So, to guarantee an apartment that rents for $1,000 a month, WeCosign costs you $1,300, Insurent will cost you $750 to $950 ($1,100 for non-U.S. applicants), and Co-Signer.com will cost you $845 for a 90-day guarantee or $1,325 for a 180-day guarantee. And that's on top of any brokers' fees or security deposits the tenant might be asked to pay.
Each service has a different underwriting standard. Insurent requires that you earn 27.5 times your monthly rent in annual income, lower than the 40 to 50 times that New York landlords often mandate, and U.S. applicants must have a minimum credit score of 630. WeCosign.com doesn't have a minimum credit score requirement but uses a proprietary system that screens for 10 major risks factors, one of them being behind on a large number of utility bills. Meanwhile, Co-Signer.com requires a 3:1 income-to-rent ratio, and only a violent felony or multiple evictions will automatically disqualify you. (Its clients include the soldier mentioned earlier).
Of course, the services only work if the landlord accepts them. If they haven't heard of the company, or even the concept itself, they may be skeptical, as that ex-boyfriend found out when he signed up with WeCosign.com. The man, who spoke to SmartMoney.com but asked not to be identified, says that all the apartments he tried to get into turned up their noses at the idea of an outside co-signing service. WeCosign's Jakubaitis says that in cases like these, the customer should ask the co-signing company to call up the landlord and pitch them on their service.
If multiple landlords turn you down, you can also ask the co-signing service if it can refer a landlord in your area it has worked with before. Insurent COO Jeffrey Geller says you can also try to sweeten the deal for the landlord by offering a higher security deposit, or by promising to prepay your rent several months in advance.
So is a co-signing service worth it? Carmen Wong Ulrich, a wealth manager who has written two personal-finance books aimed at people under 40, notes that much of the value of these services depends on whether the landlord agrees to use them. There is also the substantial cost. She adds, "Of course, the 'real cost' is that without a co-signer, you may not be able to get a place at all."