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Figuring out what you can afford to rent in NYC can bring about some rather soul-crushing realizations. Many NYC landlords require renters to have both a good credit report and an annual salary of 40-45 times the monthly rent in order to sign a lease.
With rents in Manhattan at their highest in a decade, these requirements can be a tall order. You'd need to be earning a minimum of $118,000 to qualify for an apartment at the current median rent of $2,950 in Brooklyn. There are a few workarounds if you are a student or haven’t built up a U.S. credit rating, including using a guarantor to vouch for you.
It’s typical for a family member to act as a guarantor, although anyone who meets the requirements can step up or you can use a company that offers guarantor services. The financial liability is a serious consideration—if you don’t pay your rent, the landlord will go after the guarantor for the money. So when you’re asking a relative or friend to take on this role, you’ll want to be as transparent as possible about your finances.
What you need to tell your guarantor
You need to say how much money you have coming in as well as the plan you have for paying the rent if your income changes or a roommate leaves. A parent will typically have a good understanding of their son's or daughter's finances but any guarantor is entitled to ask you for as much information as they want if they are going to be comfortable with the arrangement, says Eric Hamm, senior managing director at Citi Habitats.
"There needs to be a conversation ahead of time, where the guarantor says, 'if I am willing to do this for you, I need to see what financial shape you are in; your credit, your income, and how much you have in the bank,'" says Hamm.
You're undoubtedly cautious about revealing your personal information and reputable brokers will take privacy and confidentiality very seriously. A broker who sends the financial information from an applicant or guarantor to a landlord cannot pass info from one to the other. So if a renter gets rejected by a landlord, the broker can't, for example, tell a son that his father has not met the requirements of a guarantor. That's why the burden is on you to have a candid conversation with your guarantor.
"When there are multiple parties, you have to remember the financial information of an individual is private to them—we can't share that with the other parties involved, which is why there's a need for candid conversations about finances," says Hamm.
What institutional guarantors want to know
If you are using an institutional guarantor, there are going to be specific requirements you’ll have to meet, however, Jeffrey Geller, vice chairman of the institutional guarantor company Insurent (a Brick Underground sponsor), says often they are less stringent than landlord requirements.
When a landlord does a credit check, they get an outline of your finances and may ask for two years of tax returns or more if the guarantor is self-employed. Geller says parents often step aside from being guarantors and use Insurent because landlord requirements are so “invasive."
“Insurent will only need to see pay stubs or a copy of a bank or brokerage statement,” he says.