Is an HOA loan right for you? 

An HOA loan is a type of loan offered by banks and lenders specifically to HOAs. It is a commercial loan, and it does not require credit checks on individual homeowners.

HOA loans are secured by the community association's monthly dues and are based on the organization’s financial profile. For many communities, HOA loans offer a viable way to raise funds without a special assessment on homeowners or draining the HOA’s reserve savings. 

When an HOA takes out a loan, it does so under the organization’s name. This means that the community association or HOA, not the homeowners, goes into debt. Board members typically discuss which lenders and loan terms are the best option before they borrow money. An HOA representative can apply for an HOA loan in person or online, depending on the lender.

To apply, the HOA must provide documents showing that the representative has permission to get the loan. The lender may also require: 

• • Financial statements
• • Approval from HOA members
• • A credit evaluation 

The HOA loan application process doesn’t affect homeowners’ credit scores or mortgages, since the loan is not tied to them.

Most community associations and HOAs in good standing can apply for an HOA loan. Lenders look for things like a low number of homeowners behind on payments, a consistent history of collecting monthly dues on time, and clear, accurate financial records.

Popular Association Banking reviews specific criteria for community association loans. These requirements change and may vary at the time you apply for a loan.

Depending on the lender’s requirements, HOAs may be eligible for the following loan types. Consider which of these types and their terms best suit your community’s needs. You can also speak to a financial advisor about your options. 

A standard HOA loan features a fixed amount of money with a set interest rate for a set time, usually five to 15 years. The HOA repays the loan over time, similar to most mortgage or auto loans. These kinds of loans are ideal for large-scale projects that need a lot of funds upfront. 

AnHOA line of credit works similarly to a credit card. The HOA has a limit on how much it can borrow, but only pays interest on the borrowed amount. Repayment usually lasts between one and five years. Although interest rates can change, HOA lines of credit are useful for when an HOA needs quick access to funds. 

This option has two phases: it starts as an HOA line of credit in the first phase and converts into a standard HOA loan in the second. Once the second phase begins, the lender sets the interest rate for the remaining balance. The terms for each phase can differ depending on the lender. 

A short-term HOA loan works like a standard loan, but with a shorter repayment window between one and 10 years, with a few years being most common. Since these loans have shorter terms, the monthly payments tend to be higher. HOAs with an aggressive repayment plan can benefit from this option, as it reduces total interest paid, depending on the terms offered.

Board members should review the bylaws to determine if borrowing is allowed and learn of any guidelines regarding the process. If obtaining an HOA loan is permitted, it’s also important to decide who will oversee communications and negotiations with lenders. 

The community association must also confirm why the loan is needed and how it will be repaid. Board members should outline what specific loan terms they want including the term length, interest rate, repayment schedule, and any associated loan fees. HOA board members should also consider whether additional sources of income can help repay the loan, and whether they will need to increase monthly dues to cover the cost of the loan. 

HOA loans can help responsible condo and community associations complete improvement projects and repairs, but they do require careful preparation and financial planning. Be sure to weigh the following pros and cons before seeking an HOA loan.

• • Homeowners may avoid the financial strain of a special assessment 
• • HOAs can still buy and sell property 
• • Loan-funded projects can improve property values and attract new buyers
• • The HOA doesn’t need to use reserve funds 
• • Helps cover cash flow gaps
• • Spreads out the cost of improvement projects
• • Monthly payments are often easier to manage
• • Prevents delays due to a lack of funds

• • Not all associations may qualify for HOA loans
• • Eligibility requirements vary
• • Often requires significant pre-planning

An HOA can fall behind on its loan for several reasons, including:

• • Change of board members or management companies
• • Lack of planning or weak returns on investments 
• • A substantial number of homeowners are late on their dues
• • Misuse of funds due to unnecessary spending 

If an HOA struggles to make payments on its loan, the lender may initially offer to work with the organization to determine a solution. However, lenders can take legal action if the matter goes unresolved. In court, a judge can rule that any monthly dues collected go immediately toward paying down the loan first, instead of community improvements.

An HOA loan can help your community accomplish several goals, from maintaining a beautiful community to improving property values and amenities. Learn and understand your bylaws to determine your board's ability to obtain a loan. Speak with a Popular Association Banking Relationship Manager to discuss your options and find the best loan terms for you and your organization.