What Is a Surety Bond and Should I Use it to Rent an Apartment?

Apartments are a great housing option—the convenience, the security features, and little to no maintenance are alluring factors for renters. However, saving enough money for the security deposit and the first month's rent can be challenging. 

Some companies offer surety bonds as an alternative to a traditional security deposit to help renters move in with less money down. But, they’re not a perfect fit for everyone. Let’s take a look at what a surety bond is and whether it’s the right option for your move-in needs. 

What Is a Surety Bond?

A surety bond is an alternative to a security deposit. It reimburses your landlord or property manager if you don’t pay your apartment rent or leave excessive damage to the property. It’s often compared to a “co-signer” or insurance on your rental agreement. The surety bond takes the place of a security deposit and lets you move into your apartment with less money due when you sign your lease. 

Here’s how it works: You’ll pay the surety company (instead of the landlord) a percentage of the security deposit. The rate depends on the surety company, but it can be as low as 17.5% of the security deposit. If you leave more damage than the “normal wear and tear” clause in your lease or miss rent payments, your surety bond covers the costs to the landlord if they file a claim. It’s important to note that you will ultimately reimburse the surety company the expenses they’ve paid in addition to your non-refundable fees.

What You Should Know About a Surety Bond

Surety bonds can help make a new apartment more affordable because you won’t pay the full security deposit in addition to the first and possibly last month’s rent. However, each surety bond company has different policies about how they charge you, so make sure you read the fine print of the contract. 

Renter Responsibilities

If you use a surety bond to help cover your initial move-in costs, you’re still liable for all other tenant duties. The surety bond doesn’t exclude you from typical renter responsibilities like upkeep and on-time payments. Keep in mind that the surety bond covers your entire lease term.

Fees and Charges

Surety companies usually require a minimum charge (usually $100) for a bond they sell. When researching surety bond companies, remember that some surety bond companies charge a one-time non-refundable fee; others add smaller fees to your monthly rent payment. If there isn’t excess property damage when you leave the apartment, you won’t owe any fees. 

Surety Bond Price

Similar to applying for a loan or a mortgage, a low credit score could impact your surety bond price. If you have a below-average credit score, you can expect to pay more for your surety bond than a renter with above-average credit.

Many Apartments Don’t Accept Surety Bonds

Surety bonds are relatively new to the real estate industry. It could be challenging to find a property that accepts surety bonds instead of a security deposit. If you’re interested in using a surety bond but you’re not sure whether your apartment management will accept it, talk with a property manager before moving forward with your apartment lease.

What are the Differences Between a Surety Bond and a Security Deposit? 

A surety bond and security deposit are similar, but there are significant differences you should keep in mind. 

• If you use a surety bond, you won't get any money back when you leave your apartment. 

• A surety bond costs more in the long run because you won’t recoup any of the fees like you would with a security deposit. 

• If you’re a renter that usually gets their full deposit back, it makes sense to continue paying security deposits if you can afford them. 

• Depending on the surety company, you could automatically see your landlord’s charges for damages instead of waiting on them to send an inventoried list of deductions from your security deposit.