So, you've decided to take the plunge and rent your first apartment.
You know that besides rent, you will have to pay a security deposit. But have you ever thought about getting a surety bond instead? It's an easier option and you won't have to pay a large amount.
If you’re curious about surety bonds, in this blog we will be looking at what a surety bond is, the difference between a surety bond vs. a security deposit, how to pay for a surety bond, and everything else you need to know.
A surety bond brings together three parties into a binding agreement. These parties are:
The principal, who is the tenant or renting party.
The obligee, who is the person who will accept the surety bond. Property managers are usually the obligee.
The surety, who is the insurance company that provides the bonds to the principal (renter).
A surety bond is a one-time bond premium issued by a surety provider to act as a third-party guarantor. If the tenant causes any damage or is unable to pay their dues, the surety provider guarantees to cover the costs up to a limit. If a situation arises, the surety provider pays the property manager. Further, they seek reimbursement from the tenant.
For instance, imagine you're at a convenience store. You (the buyer) are the principal, the owner of the store is the obligee, and the company that provides the products is the surety.
Security deposits safeguard the interests of property owners in case of unpaid dues or damages to the property. This covers them for liabilities. Most security deposits are paid in the form of cash.
Surety bonds, like TheGuarantor's Security Deposit Replacement, are similar to security deposits because the company giving the bond provides the money to the property owner directly. This amount is later reimbursed by the renter (i.e. the person that buys the bond).
The purpose of the two is essentially the same. A surety bond is less expensive compared to a security deposit, thus it's a lower upfront cost to a tenant. This makes it the ideal choice for most renters since some may find it difficult to pay a large security deposit upfront.
Surety Bond Insurance Cover
Surety bonds are safer and more straightforward than security deposits. And the chances of getting back your bond amount are higher. Buying a surety bond through an insurance company is helpful as it makes it easier to get back the entire amount unless the property manager claims damages.
Even if they do, you can counter the claim. This is challenging with traditional security deposits and can also be overwhelming.
Let’s look at some more benefits of surety bonds:
Easier ability to retrieve the full amount.
The property owner has more faith in renting to you. If you provide a surety bond, the owner can be sure that they will get paid back in case of damages. This makes you an ideal candidate to rent to!
Using TheGuarantors’ Security Deposit Replacement Policy is a smart alternative to a traditional deposit. As mentioned earlier, since you don't need a large cash deposit at the start, your move-in costs are lower. It's a win-win situation.
A surety bond takes care of the security deposit. If there are no damages to the property, you will receive the entire deposit amount back. The amount you pay will depend on the type of bond and the amount of coverage you need. Surety bond premiums can range from lower than 11% up to 15% or more of the total bond amount. Your bond amount can also vary depending on your credit score. Simply put, if the company feels that you are a secure investment, they will not charge a hefty premium.
You should also be aware of a potential downside with surety bonds. If the property manager claims damages to the property, your insurance will only cover you up to a limit.
Above all, a surety bond doesn’t give you complete protection, as you’ll still have to pay the amount of the surety plus damages. Yet it helps mitigate the amount you’ll pay upfront, or on the backend for minor repairs from wear and tear.
This gives the renter the freedom to rent a home without needing to cough up a hefty security deposit. Also, the amount you save can be used towards your renting needs.
All you need to do is sign up and get a quote for a surety bond with TheGuarantors. Happy renting!