Tips to Find the Best HOA Loan for Your Community
The fact is that your HOA board has multiple responsibilities, from choosing property managers that will get the job done right to organizing contracts for ongoing upkeep. You might have a project scheduled for future upgrades and need to decide on the best way to create financing for it.
Loans can be an excellent alternative to spending the HOA reserve fund you have, so how do you find the right loan for your community?
Once you have confirmed you have the authority to gain a loan, here are helpful tips to follow.
Understand Your Community’s Needs
When taking a loan, there needs to be a clear understanding of the projects to be implemented, which means knowing your community's needs. Your tenants help your property run, so having clear and open communication is critical.
Understanding your tenant's priorities will help you create a budget that reflects the fiscal adjustments made in coordination with taking the loan. This will prevent overspending, avoid increasing dues for the tenants, and reduce the need to make future loans.
When you are getting feedback, your tenants will likely have several needs to address; however, the two main categories to consider are:
Perceived needs are based on the individual's judgment about the necessity of benefits for a particular service or space. One example of this could be how the tenants feel about communal areas.
Some may think the property's condition is satisfactory, while others may not. While some of the concerns may feel pressing for some tenants, you must weigh the priorities and address the most important ones first.
Absolute needs are deemed a priority. This could fall under issues with maintenance or efficiency and management for resolving problems. These are circumstances that the tenants feel are a priority and will need to be addressed.
To gain more insight, tenant surveys are a great start, because the landlords and property managers receive feedback from the residents to help improve the property and increase tenant retention and satisfaction.
You may also consider holding a community meeting where individuals can express their interests and desires in person or interview people who live in the association.
Know Your HOA Loan Options
You want to find a bank that will work alongside you in the process to help you understand what risks are involved in the loan. The best bank for your needs will help ensure that you have all the correct information to help educate homeowners on taking out the loan.
It also helps make sure you have an appropriate loan structure, everything from amortization, covenants, rate/term, prepayment penalties, etc.
You may want to have designated individuals in place to decide where the funding will be best used while at the same time shopping the lenders for competitive HOA loan rates. This allows the documentation to be in place for any board members who may come on in the future.
You also need to understand the kind of loan that is the right fit for your situation.
There are three standard HOA lending options: line of credit, term loans, and credit line with conversion.
Line of Credit
This option works like a credit card where the association has a maximum limit. The interest rate can be variable, but the money can be prepaid with no penalty.
Also, you typically only pay interest on what is outstanding versus having a fixed payment each month which gives the HOA some flexibility.
This choice provides the requested funds to the association on a three to 20-year loan and has a locked interest rate.
Credit Line With Conversion
This funding option is ideal when a renovation is needed, and the loan is converted to a longer-terms once it is complete. This allows a longer time to pay off the loan and provides immediate funding.
HOA Capital Can Help You Find the Right Loan Option
HOA Capital offers streamlined loan options and one-on-one consultation for the process. We want to help you create an optimal living environment for all your tenants and secure funding for any needed capital improvements.
We strive to create a plan that outlines the needs of our clients as they are going through the loan process, so give us a call at 952-836-9593 or contact us today for more information!