HOA Loan Options: Medium-Term vs. Long-Term Loans

Most homeowners' associations operate as nonprofits. While the leaders should utilize a business mindset for revenues, incurred expenses, and long-term planning, an HOA loan may still be needed.

So, if your association has been considering applying, let's look at the difference between medium-term and long-term loans to help you pick the right one for your association.

What Are HOA Loans Used For?

HOA loans generally fund expenses and projects for maintenance, repairs, and improvements. This can include building an HOA clubhouse, upgrading the landscaping, or even paying a yearly insurance premium in advance.

HOA loans offer a quick way to address any issues and deliver results more efficiently because the funding is available much faster for the project.

HOA Medium-Term Loans

There are some situations where the association may find itself in a short-term need for funding. This could include short-term repairs, HOA exterior maintenance, or supporting various funding needs.

Medium-term loans typically last between three and five years and will provide you with all the funding at once. Additionally, the interest rate is locked, so the monthly payments stay the same, and while a medium-term loan may have a higher rate each month, the debt gets paid down in a shorter period.

While a medium-term can be a great option, the biggest drawbacks include:

• It may be harder to qualify for
• Come with a higher interest rate
• Include prepayment penalties and origination fees.

HOA Long-Term Loans

A long-term loan has a longer time frame than a medium and can range between 7 and 20 years so they function more like a mortgage. Long-term loans are funded upon closing and will typically be used for significant investments like land acquisitions or extensive structural repairs.

And while they may have a better interest rate compared to the medium-term, it can take much longer to get out of debt.

HOA Capital: Your Trusted Lending Source

Homeowners associations carry a large amount of fiscal responsibility and oversee keeping the community running effectively. Without proper funding, this can be challenging, so HOA Capital is here to help.

Our Minnesota team offers professional one-on-one lending consultations and wants to help you make your capital improvement plan a reality.

You need streamlined solutions based on expert guidance and support for your lending needs, so message us online, or call us at 952-836-9593 to learn more about our services.