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Choosing Surety Bonds for Your Home Renovation

Posted on March 03 By MLP Lending Guide

For many homeowners, the choice between expanding their current home and buying a new one is difficult. Financing it can be a hassle in this economy. But have you considered the benefits of a surety bond?

In efforts of keeping roots planted, many homeowners eventually decide to renovate their current home to suit spatial needs. Whether the family needs an additional bedroom or simply more space, a home renovation and expansion can be a big project requiring the need for a specialized contractor who can perform and supervise the work properly.

However, with rampant nightmare stories of how homeowners received terrible workmanship or even uncompleted renovations, how do you get assurance from a contractor that the job will be completed and completed properly? A little investment on your part in a surety bond can help assure that your home renovation gets completed as agreed contractually.

What is a Surety Bond?

Surety bonds were developed as early as Egyptian times to help protect the interests of landowners or property owners, as well as ensure that work on the land was completed as agreed. In todays time, a contract performance surety bond fills the same role. A surety bond involves a neutral third party to help assure that contract work is completed as agreed and on budget.

A surety bond has three parties: the principal, who is the contractor performing the work; an obligee, who is the receiver of the work; and a surety who ensures all obligations are performed from all parties.

Where Do I Get a Surety Bond for My Renovation?

The surety bond is generally purchased through an insurance company. Insurance companies are in the business of underwriting and enforcing contractual obligations. They also are experts at risk assessment and risk avoidance. What better place to get help with such a potentially risky activity as home renovation than from a group that tries to avoid risk at all cost?

An insurance company can also help filter and screen contractors. They will assess the risk of each one as determined by past performance, financial resources, and access to the appropriate equipment. With this extra help in obtaining the best contractor, you can be more assured that the job will be performed by the best qualified contractor.

Though insurance companies often will provide surety bonds, they are not an insurance policy. An insurance policy transfers risk to the insurance company, who will pay an agreed amount in the case of unforeseen circumstances. A surety bond, however, is quite tangible. The outcome is known, predictable, and controllable. Some insurance companies will even offer surety bonds that provide the obligee with a penal sum, or prescribed dollar amount, if the contract is unfulfilled by the contractor.

State it in the Contract

Since a surety is there to see that all contractual obligations are met, it is best to get everything you want stated in your contract with the builder or contractor. Even a little time spent with your attorney to draw up a document with all your needs can be money well spent.

It is not always enough to state that you agree with a contractor to build an addition to your home. Be as specific as possible on the outcome. Do you want all work to exceed building codes? Do you want extra waterproofing to assure that the new addition will be leak-free? What type of construction materials do you want incorporated in the addition? The more specific you can be in the contract, the better your surety can serve you when they see that the contract is fulfilled.

Building an addition to your home is a big project. You can help protect your home investment and also help avoid disaster with a good surety bond from a reliable company. Also, visit the SBA surety site for more info.

This entry is filed under Bond financing , Home mortgages , Fha loans . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response.
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6 Responses to "Choosing Surety Bonds for Your Home Renovation"
  1. Beth 01, Jan, 2011

    It's nice to read a quality article. I really enjoy many of the articles on your site.

      Reply»  
  2. Wealth Manager 23, Dec, 2010

    I gotta favorite this website it seems very beneficial very helpful

      Reply»  
  3. Kasey Meineke 02, Dec, 2010

    are there or maybe someplace out there i can find the sure best insurance company that what i mean is cheap but have the best quality and easy to claim lol

      Reply»  
  4. James Bond 26, Oct, 2010

    It was my understanding that the contractor purchases the surety bonds not the homeowner. Or is this a difference between public works contracting and private residential contracting?

      Reply»  
  5. Gas scooter parts 12, Sep, 2010

    ... I thought that was extremeley fascinating. Thank you for your unusual facts. I�ll retain subsequent this....

      Reply»  
  6. Ever_Bright 26, Aug, 2010

    Cheers, going to be renovating and its made me realise what a big job it will be!

      Reply»  

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