Security deposit and/or first and last month’s rent assistance

Overview

Some low-income households lack the accumulated savings needed to cover a security deposit and any required prepaid rent, such as first and last month’s rent. These obstacles may make it difficult for people experiencing homelessness or seeking to escape domestic violence to access rental housing, or for households to move to a better unit or a neighborhood offering better schools or other desired features.

An inability to afford a security deposit and prepaid rent may also leave households that receive a housing choice voucher unable to use their voucher to rent a unit in their preferred neighborhood, or even to use the voucher at all. Some jurisdictions offer financial assistance to help cover these costs, as grants paid directly to the landlord or as low- or no-interest loans that the tenant must repay. In some cases, assistance also helps to cover utility start-up costs or other expenses associated with a new home. Recipients may also be eligible to receive additional supportive services and case management. Recent research suggests that security deposits, application fees, and other upfront rental costs can create a substantial cash barrier for renters seeking new housing.

Approach

Public agencies and private organizations that provide security deposit and/or first and last month’s rent assistance commonly provide the assistance as a grant paid directly to the landlord. However, assistance can also be structured as a low- or no-interest loan to the tenant, payable to the sponsoring organization in installments or in full after a certain period of time. States and local jurisdictions usually fund security deposit and first/last month’s rent assistance programs with federal block grant programs such as Community Development Block Grant, HOME, or the Emergency Solutions Grant program (for people who are experiencing homelessness or at risk of experiencing homelessness). Housing trust fund proceeds and other locally-generated funds may also be used. Emergency Solutions Grants and rapid rehousing programs may also cover move-in costs such as rental application fees, security deposits, and related housing search or stabilization services for eligible households.

In some cases, program sponsors do not provide direct assistance at all, but instead work closely with property owners to create affordable alternatives to up-front payments of the security deposit or first and last month’s rent. For example, program staff may negotiate with landlords on behalf of lessees to allow the security deposit to be paid in monthly installments along with the rent, while the organization provides a guarantee during the pay-back period (typically 6 to 12 months).

Coverage

Assistance can be structured to cover a variety of costs associated with beginning a new tenancy. Most commonly, programs help to pay for the security deposit and/or first and last month’s rent. While households may be able to afford one month’s rent, the combined total of these payments can create a barrier for prospective renters who have limited accumulated assets.

Some localities may also allow renters to choose among alternatives to a traditional security deposit, such as installment plans, or they may allow for private-sector deposit alternatives, such as security deposit insurance (see “Private-Sector Alternatives to Security Deposits”).

Other costs that may be covered, either in addition to or instead of security deposit and rent payments, include:

• Rental application fees
• Move-in fees
• The cost of a new lock and key
• Start-up costs or deposits for utilities
• Moving expenses
• The purchase of new furniture

In some cases there may be additional limitations on how the assistance can be used – for example, recipients may be restricted from using funds for moves to locations outside of the awarding jurisdiction, or may need to use the assistance within a specified timeframe once it has been awarded.

In addition to financial support, some agencies and organizations provide supportive services and case management to help households remain in good standing and avoid future rent crises or housing instability. These types of services may be particularly beneficial for families at risk of homelessness or program participants who formerly experienced chronic homelessness and are transitioning to their own home.

Eligibility

Eligibility for security deposit and/or first and last month’s rent assistance is typically limited to low-income or very low-income individuals and families who can show that they are also able to maintain rent payments after one-time assistance has been provided. Compliance with this requirement may mean demonstrating that the proposed rent level does not exceed a specified amount and/or share of household income (often 30 to 50 percent, depending on the jurisdiction). Households who receive Housing Choice Vouchers will often be able to comply with these limits. Other applicants may face greater difficulty, unless their challenges are related to a short-term situation (such as an unexpected medical bill) that has since been resolved.

Programs may also have certain lease provisions, such as requiring a 12-month term or excluding prohibited lease terms associated with HOME or other federal programs. Applicants may need to provide a copy of the rental agreement or unit offer that indicates applicable terms and the amount owed up-front. Alternatively, localities may consider broader legislation that requires landlords to provide options to renters in lieu of a traditional security deposit.

With limited program funds, some programs focus on or give priority to specific populations, including women fleeing domestic violence, individuals and families who are at imminent risk of homelessness or leaving homeless shelters or transitional housing (often with a referral from a service provider), or people with disabilities. Other programs provide security deposit and other forms of assistance in connection with housing mobility programs that help renters access resource-rich areas. Program eligibility may also be limited to households who are already residents of the jurisdiction. The amount of assistance available to each household on a one-time basis is usually capped, and programs may also limit the number of times that a household can receive assistance over a specified period (e.g., one time per year, up to $3,000 in assistance over a five-year period, etc.).

Private sector alternatives to security deposits

Companies in the emerging “insurtech” industry offer a range of private sector alternatives to traditional security deposits, most popularly “lease insurance” and surety bonds. Private sector alternatives to security deposits may reduce upfront costs for tenants, but many of these products are relatively new, and their impacts are not yet well understood. Policymakers should evaluate whether fees are refundable, whether tenants remain liable for landlord claims, and whether ordinary security deposit protections apply. Localities are encouraged to evaluate the merits of each option based on its provision of coverage and the level of risk that tenants assume.

Most surety bonds are not regulated by landlord-tenant laws. n some states, surety bond providers allow landlords to file claims against tenants that exceed restrictions placed on typical security deposits. Furthermore, landlords may file claims for repairs that are prohibited under local rules that govern security deposits, such as the exclusion of typical “wear-and-tear.” Some bond providers require tenants to agree to an arbitration clause and waive their right to join any future class action suits. Localities seeking alternatives to traditional security deposits should ensure that existing tenant protections extend to any new forms of insurance or payment.

Examples

Washington, DC’s Emergency Rental Assistance Program (ERAP) helps income-eligible District residents facing housing emergencies. In addition to helping with overdue rent in qualifying cases, the program supports security deposits and first month’s rent for residents moving to new apartments

Baltimore, MD’s Security Deposit Assistance Program provides one-time financial assistance to eligible Baltimore City residents who have found a rental unit but need help covering the security deposit. The program is designed to remove financial barriers to housing, help residents secure housing faster, and support long-term housing stability.

New Haven, CT’s Security Deposit and Utility Arrearage Program provides one-time assistance to individuals and families who need help with a security deposit to move to permanent sustainable housing and/or utility arrearage assistance to maintain safe living conditions.

Cincinnati, OH’s “Renter’s Choice” ordinance allows tenants to request an alternative to a traditional lump-sum security deposit. Landlords with more than 25 units must offer one of three options: renter’s insurance or a similar deposit alternative, a six-month payment plan, or a reduced upfront deposit.

Low- and very low-income households leasing up in deed-restricted properties in Montclair, NJ, can receive a grant through the First Months Rental Assistance Program to pay for up to the first three months’ rent to help with the costs of moving to a new rental unit.

Related resources

• The National Low Income Housing Coalition Database of City and State Funded Rental Housing Programs includes rental assistance programs.