If you’re a board member or community manager of a Homeowners Association (HOA), Common Interest Development (CID) or Planned Unit Development (PUD) and are considering a loan, it’s important to understand how HOA loans work before you apply. We’ve answered some frequently asked questions to give you a high-level overview of HOA loans.1
Why Take Out an HOA Loan or Line of Credit?
HOA loans and lines of credit allow your association to fund a variety of projects and expenses, from common area improvements to maintenance and repairs. Many HOAs, CIDs and PUDs use loans or lines of credit as alternatives to a special assessment for unexpected expenses.
What Are the Advantages of Taking Out an HOA Loan?
It spreads out the cost of common area improvements to homeowners over time and assigns the cost of those improvements to the people who are benefitting from them the most. It also allows repairs and maintenance to be performed quickly, at today’s prices.
What Are the Disadvantages of Taking Out an HOA Loan?
In some cases, HOAs, CIDs and PUDs may need to increase homeowners’ monthly assessment fees to make the loan payments.
How Does Alliance Association Bank Structure HOA Loans?
A non-revolving line of credit may be used during the construction phase (typically six to 24 months long), with interest-only payments required. This line converts to a term loan once the project is complete, typically from five to 15 years in length. Our experienced HOA lending team will work with the association to choose the loan product and structure which most aligns with the community’s goals, helping to limit the cost to the community while also providing flexible and competitive structure and rates.
Does an HOA Loan Require Collateral or Other Security?
Typically, if the loan went into default, the bank would have the right to collect HOA, CID, and PUD assessments directly from the homeowners. Individuals and homeowners are not required to personally guarantee an HOA loan or line of credit, because the borrower is the HOA, which is a separate business entity.
What Type of Information Do You Consider Before Approving a Loan?
To gauge credit risk, we’ll ask for information about:
- Current number of units with assessment delinquencies - should be less than 10% of the total units
- Liquidity (the amount of cash on the balance sheet as a percentage of annual assessments)
- Number of units within the community, how many are owner-occupied and how many are owned by the same person/entity
- Whether monthly assessments will need to increase to pay for the loan
- Whether a special or one-time assessment has been or will need to be passed in order to repay the debt
HOA Loans
Ready to begin the application process? Contact our HOA lending experts with any questions you may have by calling your local relationship manager, emailing one of our lending experts directly or submitting your information to the contact us button below.
1. All offers of credit are subject to credit approval, satisfactory legal documentation, and regulatory compliance. Borrowers are responsible for any appraisal and environmental fees plus customary closing costs, including title, escrow, documentation fees and may be responsible for any bank fees including bridge loan, construction loan, and packaging fees.