A guarantor is an individual or entity that ensures or guarantees the loan obligations of another individual or entity, typically the borrower. A guarantor steps in and becomes legally responsible for paying the debt or the mortgage payments if the borrower defaults on their loan or fails to meet their obligations. This person or entity is often used when the borrower may be considered a risk for the lender, such as having a lower income, poor credit history, or being self-employed.
Guarantors are often required in a variety of real estate transactions, such as leasing agreements and mortgage loans. For example, parents might act as guarantors for their children who are buying or renting their first home and do not yet have the income or credit history to be approved by lenders or landlords on their own.
The concept of a guarantor is a way to mitigate risk for the lender or landlord and can help individuals secure real estate investments they otherwise may not be able to. However, becoming a guarantor can be risky because it legally obligates that person or entity to cover payments if the borrower defaults.