8 Common Questions About HOA Loans
When it comes to HOA community management, you’ll inevitably need sufficient financial solutions to help fund essential renovations at some point down the road. After all, the board’s responsibility is to provide a safe and comfortable environment for all residents. But how do you pay for it?
When your association needs significant repairs, maintenance improvements, facility expansions, or other major HOA capital improvement projects, it’s crucial to weigh your financing options, and that’s where HOA loans come in handy!
Loans allow HOAs to receive the immediate funding resources required to complete any unexpected or long-overdue capital improvement projects. But before you seek out any HOA lending services, it’s important to know the basic details and particulars that are routinely associated with standard HOA loans.
If you’re hesitant to apply and procure an HOA loan that can help fund your association’s major renovations, here are some answers to common questions regarding HOA loans.
1. What Is an HOA Loan?
Like most other loans, an HOA loan is a sum of money from a bank, lender, or other official financial institution that is ultimately paid off for the total amount loaned (the principal) plus interest.
Interest fees are charged by HOA lenders for providing clients access to their money, and interest percentages vary from lender to lender.
Ultimately, what makes an HOA loan an HOA loan is that the money provided is to be used solely for an extensive, essential HOA repair or renovation project. These are referred to as capital improvement projects.
2. How Do HOA Loans Work?
While most associations have their own budgets or a reserve fund to help compensate for any unexpected or necessary renovations, it can be hard for reserve funds to cover significant expenses associated with any major remodeling projects.
That’s where HOA loans can be advantageous, allowing HOA community managers to quickly obtain the necessary funding to improve their community as they see fit.
HOA loans also allow homeowners not to have to make any initial upfront payments or choose between which payment increments work best for them.
3. Are There Different Types of HOA Loans?
There are several types of specific HOA loans that can cater to whatever repayment plans and stipulations work best between you and your HOA lender.
Let’s take a closer look at the four most common types of HOA loans.
Line of Credit (LOC)
This is the HOA loan that’s specifically geared toward providing temporary financial relief or immediate funding to cover any abrupt, unexpected expenses.
With LOCs, you usually only pay interest on the funds you actually utilize, and monthly payments can be customized to suit your association’s financial needs.
Line of Credit With Conversion
This type of HOA loan works as an LOC during a capital improvement project, but can be converted into a longer-term loan once a project is completed.
This allows for an association to pay the loan off at a fixed rate over a longer time period, which can come in handy for associations in need of immediate funding, but only want to pay interest on the initial amount used for the first year of the loan.
If your association needs to secure funds over a span of roughly three to five years, then a medium-term HOA loan is probably your best option.
Depending on your HOA lender, medium-term loans allow you to set your fixed-income rates and monthly payments to accommodate your timeline and budgeting, helping you pay off your debt in a shorter period of time with lower interest rates.
For more extensive capital improvement projects, your association will probably need to apply for a long-term loan.
From expanding a parking lot to repainting exteriors to improving the structural integrity of your facilities, long-term loans are how you can obtain the most funding upfront while paying off interest and principal from anywhere between five to 20 years.
4. What Are the Benefits of an HOA Loan?
The loan is in place to provide a financial solution that will help get the funds needed to complete capital improvement projects or emergency upgrades and repairs. It offers a long-term commitment so the association does not have to deplete any reserves they may already have on file and avoids needing to levy special assessments.
HOA loans are beneficial because they allow the projects to be completed while having the payments spread over an extended period, increasing or restoring the quality of life for the homeowners and increasing property values.
5. What Are the Potential Drawbacks of an HOA Loan?
The biggest drawback of a home loan is that it can increase the demands of the homeowners. In most situations, the increase may be much lower than what a special assessment would have cost, but it may require a raise in their monthly dues.
The other drawback to consider is that if any of the homeowners become delinquent, it may be more challenging to pay back the loan if not planned appropriately.
6. What Strategies Should an Association Use to Plan for a Loan?
Without proper HOA management, the associations will underestimate how much planning is required for these situations in many cases.
Aside from understanding and documenting how much of a loan you will need to take and what upgrades or repairs need to be done, it is imperative to make sure you are working with a lender you can trust.
You are also going to want to know the level of repair needed and know who will be following through with it. Choosing professionals that are qualified is more likely to help you get approved.
7. How Do You Choose the Loan That’s Right for Your Association?
Another common question is how you can know which loan is right for your association. Having a consultation with an expert can help you understand the intricacies of how each HOA loan works and which is most reasonable for your situation.
8. How Do You Qualify for an HOA Loan?
Not all associations will be able to successfully qualify for an HOA loan. HOA lenders will review a variety of factors that will assess everything from credit risk to budget proposals to project completion timelines.
That’s why it’s imperative to seek out professional HOA financial consultant services before going to any banks or HOA lenders yourself. A reputable HOA financial assistant firm can help you create and submit a proposal to receive an HOA loan, dealing with the banks directly on your behalf.
Contact HOA Capital to Streamline the Loan Process
When you need substantial funding for any emergency or essential upgrades or repairs to your association’s community, you can count on HOA Capital to find the HOA lender that best suits your financial needs.
Contact us online to start setting up your loan proposal request, or give us a call at 952-922-5575 to speak directly with a member of our HOA financial consultant team.