Security Deposit Guarantees Can Help You Pay Move-In Expenses.
There is another way that potential renters can get help paying a security deposit and/or first months rent. A number of companies offer assistance in the form of Security Deposit Guarantees, which can in effect be a form of financial aid. A guarantee from a bank, financial firm or insurance company can be a great option as other forms of financial help from charities are often hard to come by.
Security Deposit Guarantees are another way to get into an apartment or home when the tenant lacks up front funds. The fact is that "first and last" months rent and security deposit are terms that any renter is no doubt familiar with. Any apartment or homes that requires a lease agreement often expect the first and last month's rent up front as a condition of moving in as well as payment for a security deposit. Or there may be other fees due to get into the property, and a Security Deposit Guarantee can help the individual or family pay all of these costs.
Those up front costs can be a big obstacle to obtaining housing, particularly for low to moderate income renters or families with limited savings to their name or poor credit scores. This is where a Security Deposit Guarantee may be able to help. As people in need traditionally had to turn to local charity organizations, hoping that they were well-funded enough at that time to help out, and many charities have very limited resources.
Due the cost of moving into a rental home, private industry (including insurance type companies or even banks) have stepped in with security deposit guarantee products that help to make that large initial payment much more manageable. The programs come in various forms with different terms and conditions to each of them.
These Security Deposit Guarantee products are usually offered by insurance companies as well as financial firms. They are essentially a type of insurance called a "surety bond." The insurer is basically betting that most of their customers will not cause significant damages to the rental unit or skip out on their rent, leaving them with a net profit from all of these one-time payments.
The usual model is to have you pay a portion of the security deposit to the insurance company, who then pays the full deposit for you. This gives renters a little more flexibility in getting past that high initial move-in payment. However, it's important to note that there's usually no way to get this payment back.
Each of these services has its own unique terms. Some even operate similar to loan programs. The following are just a few examples of the security deposit guarantee programs out there and what you can expect from them.
Underwritten by ePremium Insurance, the eDeposit program has an up-front cost of $250. In return for that fee, ePremium covers whatever the security deposit amount and/or first month’s rent is for a period of up to five years.
The one big catch here is that the renter has to be a participant in the ePremium rental insurance program, so this can't be used just anywhere. However, the approval process is reportedly very quick and you are free to change units within the same complex during your five-year coverage period.
Insurer Assurant's SureDeposit program is very similar, but has more favorable terms. It costs $175 up front to cover the full security deposit, but this one is good for the life of the lease no matter how long it might be.
Landlords must be participating in the SureDeposit program for this to be available at their properties. This makes the inventory of homes to lease a little smaller for this particular Security Deposit Guarantee program.
Rhino's Security Deposit Guarantee product is a little different from the two programs listed above. Instead of paying an up-front fee, you pay a monthly subscription price for a similar service.
Rhino claims that this price can be as low as $3 per month, but says that it is determined by an algorithm and requires you to enter the terms of your lease to get a quote. One wrinkle here is that the monthly price can change if the rent goes up or you extend your lease. As with the other programs, landlords will need to be working with Rhino to accept this product.
Jetty Security Deposit Guarantee
Jetty is another "one-time fee paid up front" service, but asks 17.5% of whatever the security deposit amount is. That means it's going to most likely be the lowest-cost option for those who want to just pay one bill and have a security deposit amount below $700 or so.
This policy also lasts for the life of the lease and allows you to switch units within the same complex. And it comes with the added benefit of some discounts at a number of popular online-oriented retail services such as Thrive Market, SoFi and Blue Apron.
Leaselock is another Security Deposit Guarantee option that offers a relatively low monthly payment, but it doesn't operate on the standard surety bond model. Instead, you'll end up paying a fee (which starts at $19 per month) that provides insurance coverage and an alternative to mandatory credit checks.
Rental properties that partner with Leaselock agree to allow the company's algorithm to approve applicants in place of the standard credit check. If you're approved, you'll be asked to pay a monthly fee (also determined by the algorithm) in lieu of a security deposit.
A couple of things to watch out for here. Though it's supposed to be a credit check alternative, Leaselock appears to use credit scores as part of its predictive algorithm and you can still be denied on that basis. Also, the monthly fee can go up as high as $139 depending on the lease terms and how much of a risk the algorithm views you as.
The model that The Guarantors offers is comprehensive insurance that covers the full amount of the rent during the lease term plus the security deposit amount. There is an interest rate (so below) that is similar to a loan type program.
You'll need to apply and be approved before the company sends a quote. The company website says only that the cost of the policy is a minimum of 4.75% of the total rent obligation + security deposit, but can range up to at least 10%.
Other Security Deposit Guarantees Programs
The industry continues to evolve with additional companies offering this service. Other examples of very similar Security Deposit Guarantee programs include:
- ResidentShield (up-front payment of $250)
- Deposit Choice (up-front payment, amount depends on the location and lease terms)
- Surety One (surety bond, amount depends on the location and lease terms)
- Of course many of these financial institutions will also just provide loans, and find additional no credit loans for paying bills.
These Security Deposit Guarantee programs can be very good for landlords as well as tenants, so it might be worth floating the idea at a property you really want. Landlords get the benefit of lower administrative costs, less hassle if damages or collections are necessary, and an added layer of tenant screening.
From the renter's perspective, a security deposit guarantee makes more financial sense the longer you plan to stay in one place. As the upfront cost can be “spread” over a longer lease term, and is generally better than borrowing money.
It's also important to understand that most of these Security Deposit Guarantees don't cover any expenses that the landlord would normally be allowed to deduct from the security deposit on move-out, like extra damage beyond normal wear-and-tear. You'll owe the insurer up to the original amount of the security deposit if these extra expenses are billed to you, but the landlord can also charge you directly for costs in excess of that amount. Also note that most of these policies do not cover unpaid rent.
Changes to your lease could also change your coverage. For example, some Security Deposit Guarantee policies don't allow you to change units within the complex. A change in ownership of the rental unit could also legally void the agreement and allow the landlord to ask you for the standard security deposit.
Finally, be aware that once you sign a lease and agree to one of these Security Deposit Guarantees it can be difficult to get a refund. You'll usually get your money back only if you end up not moving into the unit for a reason that legally voids the lease. If that does happen, be sure to contact the security deposit guarantor immediately as you often have only a few business days from the lease termination to request a refund.