Homeowners Associations are responsible for maintaining their communities, and this often includes paying for property maintenance, repairs, and improvements. These costs are usually covered by the community members’ dues, but sometimes the HOA needs a loan to cover the expenses. This is where an HOA loan comes into the picture.

What are HOA Loans?

An HOA loan is provided by a financial institution, such as a bank or creditor. This is not a personal loan. Instead, this loan is issued to the HOA as a non-profit organization. For this reason, the finances of individual homeowners are not considered when applying for the loan. If the HOA cannot make the loan repayments, then they might collect from individual homeowners.

Benefits of HOA Loans

What are the benefits of an HOA loan? Here are a few pros in a nutshell:

  • Immediate Funding: HOAs are reluctant to deplete reserves, so they might fund a large project in small increments. With a loan, you can get the money you need right when you need it.
  • Better for HOA Members: Without a loan, homeowners will need to come up with money for a project themselves, and usually within a short period. With an HOA loan, the expense comes in the form of increased monthly dues, which can be simpler to manage.
  • HOA Board Efficiency: With the extra money of an HOA loan on hand, the board can carry out planned projects more simply and efficiently. Moreover, the homeowners will have greater confidence in the HOA when they see that necessary improvements are being made.

Downsides of HOA Loans

What are the downsides of an HOA loan? Here are some cons in a nutshell:

  • Unpaid HOA Dues: When members fail to pay their dues, you might have issues paying back the loan. This can place a larger burden on other homeowners, and the bank can tap HOA reserve funds to get their money.
  • Managing the Loan: The bank will need a lot of information to make sure you qualify for the loan. Once the loan is secured, you will need to carefully manage loan payments.

Types of HOA Loans

There are a few types of HOA loans to choose from. If you decide that this is the best route for your organization, then here are the options available to you:

  • HOA Line of Credit: This is like a credit card, and it is ideal for short-term funding needs. This typically comes with a variable interest rate.
  • HOA Line of Credit with Conversion: This is a line of credit loan that converts to a term loan. This provides immediate funding with the ability to pay off the loan over a longer period, and at a fixed interest rate. The term can range from 3-20 years.
  • HOA Medium-Term Loan: This loan provides all the funds you need at once, unlike an LOC loan. The interest rate is locked, so you make monthly payments that are always the same. This loan is used when you need 3-5 years to pay off the loan.

HOA Long-Term Loan: Substantial, long-term projects like land purchases or significant structural repairs are ideal candidates for this type of loan. Maturities range between 7-20 years and acts much like a mortgage. Money is provided upfront then paid off with interest plus a principal amount.