What is a Home Improvement Bond?
Home improvement contractors may be required to post a home improvement bond as part of the licensing regulations in the state or municipality where they work. A home improvement bond serves as a form of protection for a contractor’s customers against fraud or illegal activities, as well as violations of building codes. When a customer suffers financial harm at the hands of a contractor, a claim can be made against a home improvement bond.
A home improvement bond is a three-party contract that encompasses the surety company providing the bond, the principal or contractor required to post a bond, and the obligee mandating a bond be secured.
What Does a Home Improvement Bond Cost?
Similar to other surety bonds, a home improvement bond is priced as a percent of the total bond requirement. Bond amounts can range significantly from one location to the next, but typical bond requirements fall between $10,000 and $25,000. Home improvement contractors do not pay the full bond amount, but instead, they pay a bond premium ranging from 1 to 10% of the total.
The bond premium you pay for a home improvement bond is based on several factors, including your personal credit and your business financials. Contractors with an adverse credit history or low credit scores due to court judgments, liens, or missed payments pay a higher bond premium than those who have a strong credit profile. This is because a home improvement bond extends credit to the contractor to cover valid claims from customers.
How Do I Get a Home Improvement Bond?
You can start the process of obtaining a home improvement bond by submitting a brief application online. Once the surety company has reviewed your application details, including your personal credit history, you are given a quote for your bond premium.