All of you renters out there are probably pretty familiar with security deposits, but have you ever heard of holding deposits? Don’t let this term throw you for a loop – it’s simple! Holding deposits aren’t always required, and you may not find that you have to pay this expense for every apartment that you apply to. You may only have to pay an application fee and additional move-in fees after being approved. But to make sure you’re prepared for any and all application payments going forward, let’s discuss the ins and outs of holding deposits!
What is a Holding Deposit?
A holding deposit is a lump sum that a landlord or property manager will require you to pay when submitting an application for a rental property. Some landlords and property managers require a holding deposit as a sort of guarantee that an applicant will follow through and rent the apartment after their application is approved.
When a potential tenant submits an application for rent, but ultimately decides they no longer want to rent the apartment, it holds up the rental process. Because the landlord or property manager believes that this unit will be rented out, it can cost them other potential tenants that could have applied to rent the apartment. The holding deposit essentially holds the property for you in exchange for a payment. It temporarily takes that specific apartment out of the market, so it’s held for you while your application is pending approval (fingers crossed)!
Application Fee vs. Holding Deposit
Don’t confuse a holding deposit with an application fee – the cost is quite different! And most importantly, an application fee is non-refundable. An application fee is collected by the landlord or property manager from the applicant in order to cover the cost of a background and credit check. An application fee ranges anywhere from $25-$100, depending on what kind of apartment you are applying to and the area you are looking in. If an apartment community requires a holding deposit, then they will also require an application fee. You should almost always expect to pay an application fee, while a holding deposit varies by the rental.
Holding Deposit vs. Security Deposit
These are both deposits, yes, but they are completely different. When you pay a security deposit, there is a lease in play. This means that you only pay a security deposit after your application has been approved and you are signing a lease to rent the apartment. A security deposit is refundable and may be used to cover any damages caused by a tenant during their lease. Any funds remaining after any damages have been covered should be returned to the tenant. If no damages are found in the apartment, then the tenant should get the entire deposit back. A security deposit typically ranges from $100 to the cost of one month’s rent. It can, however, cost even more than that depending on the results of the tenant's background check and credit check.
How Much Does a Holding Deposit Cost?
It’s difficult to say how much a holding deposit will be, but it is typically a percentage of the security deposit. It completely depends on the apartment community. If the landlord or property manager thinks half a month’s rent is substantial for a holding deposit, then that’s what it’ll be! It varies place to place, so be sure to ask about the cost of the holding deposit before you apply to that apartment.
Is a Holding Deposit Refundable?
Sometimes a holding deposit is refundable, and sometimes it’s not – it’s situational. If another rental application was submitted before yours and is approved by the landlord or property manager, making the unit unavailable to you, your holding deposit should be refunded. Keep in mind, however, your application fee is non-refundable, so don’t expect to get that back!
If your application is accepted, and you decide against renting the apartment (for any reason), then the landlord or property manager may choose to keep your holding deposit since they potentially missed an opportunity to find another tenant. After all, the landlord or property manager could’ve already been making money off of rent and move-in fees from another tenant. To avoid losing your holding deposit, ask the landlord or property manager what their official policy is regarding this matter.
If your application is accepted, and you decide to indeed rent the apartment and sign a lease, then your holding deposit will likely be put towards your security deposit (which usually costs more than the holding deposit). Holding deposits aren’t always required by landlords or property managers, but you may come upon one or two of them during your apartment rental journey.
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Originally published May 2, 2019
