The Ultimate Q&A for HOA Loans
Serving on a homeowners’ association (HOA) or condominium association (COA) board can be overwhelming, especially when it comes to understanding how your community can access financing. Whether you’re just learning what an HOA is, or you’re preparing your association for a multi-million-dollar renovation project, this guide covers everything you need to know.
We’ve organized 50 of the most common questions and answers into five categories: HOA Basics, HOA Loan Basics, HOA Bank Loans, HOA Private Loans, and Advanced Topics. Use this resource to guide your board and community through every stage of the financing process.
Part 1: HOA Basics
Q1. What is a Homeowners’ Association (HOA)?
A homeowners’ association is a governing body made up of property owners within a planned community, such as a subdivision or townhome development. The HOA is responsible for maintaining common areas like landscaping, parks, and amenities, as well as enforcing the community’s rules and regulations (often called CC&Rs-Covenants, Conditions, and Restrictions). Membership is mandatory for all property owners in the community, and dues are collected to cover operating costs, reserve funding, and occasionally, loan repayment.
Q2. What is a Condominium Association (COA)?
A condominium association functions much like an HOA but is specific to condominium communities. Unlike HOAs, where owners usually own both their home and the land beneath it, condo owners typically own only the interior of their unit, while all structural elements, building systems, and shared spaces (like hallways, elevators, and the roof) are jointly owned and managed by the association. This makes the role of the COA especially critical, since it is responsible for both the safety and long-term maintenance of the entire building.
Q3. How is an HOA different from a COA?
The main distinction lies in the type of property governed. An HOA typically manages single-family homes or townhomes and oversees amenities like pools, security gates, or landscaping. A COA, on the other hand, manages condominium buildings and assumes responsibility for structural integrity, utilities, elevators, and building safety. While both collect assessments and enforce rules, the financial responsibilities of a COA are often larger and more complex because of the shared building systems.
Q4. How is a condominium association created?
A condominium association is usually formed by a property developer. The developer files the Declaration of Condominium and Articles of Incorporation with the state, creating a legal entity to govern the property. Initially, the developer controls the board, but as units are sold, control transitions to the owners. Once turnover occurs, unit owners elect their own board, giving residents direct control over financial and operational decisions, including the authority to secure loans.
Q5. Who are the board members of an HOA/COA?
Board members are volunteer property owners who are elected to represent the interests of the community. Their roles typically include president, vice president, secretary, and treasurer, though structures vary. These individuals take on fiduciary duties, meaning they must act in the best interest of all members, not just themselves. Board members approve budgets, oversee maintenance, and make major financial decisions, including whether to pursue a loan for capital projects.
Q6. How are board members elected?
Elections are usually held at annual meetings. Homeowners are given notice of the election, and candidates may nominate themselves or be nominated by others. Depending on the governing documents, voting can occur in person, by proxy, or electronically. A simple majority of votes is typically required to elect board members. Transparent, well-run elections help ensure homeowner confidence and avoid disputes.
Q7. What powers do board members have?
Board members are empowered to manage the community’s affairs according to governing documents and state statutes. This includes approving annual budgets, setting and collecting assessments, hiring vendors, enforcing community rules, and entering into contracts. Importantly, boards often have the power to authorize loans-though in some cases, a membership vote is required.
Q8. What limits exist on board power?
Boards cannot act outside of the governing documents or beyond their legal authority. They must adhere to fiduciary duties of care, loyalty, and obedience. For example, a board cannot spend reserve funds on unrelated projects, ignore voting procedures, or sign contracts that violate the association’s bylaws. Homeowners can hold boards accountable through elections, legal remedies, or state regulatory agencies.
Q9. What role do property managers play?
A property manager is typically hired by the board to handle day-to-day operations. Duties may include collecting dues, coordinating vendors, managing maintenance schedules, and communicating with residents. While managers provide expertise and support, they do not have decision-making authority; ultimate responsibility rests with the elected board.
Q10. How do HOAs and COAs collect money from owners?
Associations collect revenue through assessments-mandatory dues paid monthly, quarterly, or annually. These funds cover routine operating expenses, insurance, reserves, and sometimes loan repayment. If a large expense arises and reserves are insufficient, boards may levy special assessments or pursue a loan, spreading the cost over time.
Part 2: HOA Loan Basics
Q11. Why would an HOA or COA need a loan?
Loans provide associations with the ability to fund large projects without requiring owners to make a sudden, often burdensome, lump-sum payment. This is especially important for urgent projects like roof replacements, concrete restoration, or compliance with new state-mandated safety inspections. By financing the cost over 5–15 years, the board can maintain the property, protect values, and minimize financial strain on homeowners.
Q12. What types of projects can loans cover?
Lenders typically finance capital improvements and major repairs such as roofing, plumbing, electrical upgrades, elevator replacements, seawall repairs, or new amenities like clubhouses and gyms. Loans may also fund mandatory compliance projects, such as Florida’s milestone inspections or structural integrity reserve studies (SIRS). Smaller projects are usually covered by reserves, but larger, multi-million-dollar efforts often require financing.
Q13. How do lenders evaluate HOAs?
Lenders analyze the association’s financial health and governance. They review audited financial statements, annual budgets, delinquency reports, and reserve funding. They also examine governance documents to confirm that the board has authority to borrow. Strong financial practices, transparent management, and low delinquency rates improve approval chances.
Q14. How long are typical HOA loans?
HOA loan terms usually range between 1 and 20 years. Larger projects with costs spread across hundreds of units may be financed over a decade or longer, while smaller projects may have shorter terms. Boards must weigh the length of the loan against projected cash flow, homeowner affordability, and the expected lifespan of the improvements being financed.
Q15. How are loans repaid?
Loans are repaid through owner assessments. The board may increase regular dues or levy a project-specific assessment to fund repayment. The cost is divided among all unit owners according to the allocation in the governing documents (for example, square footage or equal shares). Spreading repayment across years ensures affordability for residents and stability for the association.
Q16. Can HOAs get loans without reserve funds?
Yes, but it can be challenging. Banks often expect reserves to be well-funded as a sign of fiscal responsibility. Associations with little to no reserves may struggle to qualify with traditional banks but may still be able to secure financing from private lenders who focus more on project urgency and board commitment than reserve balances.
Q17. What is the difference between a loan and a special assessment?
A loan provides immediate funding, allowing projects to start quickly, while repayment is spread over time. A special assessment requires homeowners to pay a lump sum upfront, which can be financially devastating for some residents. Loans are often more practical because they reduce homeowner resistance, accelerate repairs, and stabilize cash flow.
Q18. How do interest rates compare?
Rates vary based on lender type, loan size, term, and financial condition of the association. Bank loans typically offer lower interest rates but require strict underwriting and documentation. Private loans may carry higher interest rates but are more flexible, often approving associations that banks reject. Boards must weigh cost against certainty and speed.
Q19. What happens if owners don’t pay assessments?
Delinquencies reduce the association’s cash flow, which can impact its ability to repay loans. Associations have legal tools to address nonpayment, such as late fees, liens, or foreclosure. Lenders monitor delinquency levels closely-generally preferring rates below 10%. Boards should have strong collection policies in place before applying for financing.
Q20. What documents are needed to start a loan application?
Common requirements include Articles of Incorporation, Bylaws, Declaration of Condominium or CC&Rs, a board resolution authorizing the loan, current financial statements, budgets, delinquency reports, and details about the project being financed. Starting early helps avoid delays since gathering and reviewing these documents can take time.
Part 3: HOA Bank Loans
Q21. What is an HOA bank loan?
An HOA bank loan is a loan provided by a traditional financial institution-such as a commercial bank or credit union-specifically tailored for homeowners’ associations and condominium associations. Unlike typical commercial loans, these products are designed to work with the unique revenue structure of associations, where repayment depends on assessments collected from owners rather than from direct property collateral.
Q22. What are the advantages of bank loans?
The biggest advantage of bank loans is cost. Banks usually provide lower interest rates and longer repayment terms than private lenders, making them attractive for associations with strong financials. A well-structured bank loan also improves predictability, with fixed monthly payments spread out over many years. Additionally, bank loans carry a sense of credibility, as they are subject to strict regulatory oversight and well-documented processes.
Q23. What are the disadvantages of bank loans?
The primary drawbacks are time and strict requirements. Banks demand extensive documentation, including reserve studies, audited financial statements, and detailed budgets. They typically require delinquency rates below 10% and healthy reserve balances. For communities that do not meet these standards, approval is often delayed or denied. Projects with urgent timelines may not be able to wait months for approval, making bank loans less practical in emergency situations.
Q24. How long does bank loan approval take?
Approval for an HOA bank loan can take anywhere from 60 to 120 days, depending on the complexity of the project and the thoroughness of the application. The process includes financial review, board resolutions, legal review of governing documents, and credit analysis. Delays often occur when associations are not prepared with all necessary documentation, making early preparation critical.
Q25. What financial conditions do banks require?
Banks evaluate several financial indicators:
Reserve funding: A well-maintained reserve fund is a sign of fiscal responsibility, typically 20% of the annual budget.
Delinquency levels: Banks generally want fewer than 10% of owners behind on dues.
Operating budget: The budget should be balanced and show adequate cash flow.
Collection practices: Lenders want assurance that the association enforces payment obligations.
Meeting these benchmarks demonstrates that the association is capable of handling long-term debt responsibly.
Q26. Can banks require personal guarantees?
Generally, no. Unlike small business loans, HOA and COA loans are structured so that repayment is secured by the association’s power to levy assessments on all owners. This means no individual board member or homeowner is personally responsible. This structure protects volunteers from liability and ensures that repayment is a collective obligation.
Q27. What loan structures do banks offer?
Banks typically provide fixed-rate loans, adjustable-rate loans, and lines of credit. Fixed-rate loans are the most common, offering stable monthly payments. Adjustable-rate loans may start with lower payments but can fluctuate over time. Lines of credit are useful for phased projects, allowing associations to draw funds as needed rather than receiving all money upfront.
Q28. Do banks work with all association sizes?
Many banks prefer larger associations with 50 or more units, as they provide a broader base of owners to spread repayment across. Smaller associations may still qualify, but lenders may scrutinize their finances more carefully. In these cases, regional banks or community banks are often more flexible than national institutions.
Q29. What collateral do banks use for HOA loans?
Banks rely on the association’s legal right to levy and collect assessments, rather than placing a lien on physical property. This unique form of collateral ensures repayment comes from the collective revenue stream of the community, not from specific assets or board members.
Q30. What happens if the bank declines the loan?
If a bank declines a loan, the board should not view it as the end of the road. Many associations turn to private lenders, who often work with communities that don’t meet strict bank requirements. Boards can also revisit their financial practices-such as tightening collection policies or adopting reserve funding plans-to improve eligibility for future applications.
Part 4: HOA Private Loans
Q31. What is a private HOA loan?
A private HOA loan is financing provided by non-bank lenders who specialize in community associations. These lenders are often more flexible than banks, focusing on the needs of the property rather than rigid financial formulas. Private loans are commonly used by associations denied by banks or facing urgent repair deadlines. Oftentimes, private lenders like Samtov Finance can serve as a bridge loan for an association, providing short term funding to be refinanced by a longer-term bank loan after 1 or 2 years.
Q32. Why choose a private loan?
Associations often choose private loans like Samtov Finance when speed and flexibility are more important than securing the lowest possible rate. Private lenders are less concerned about reserve balances and delinquency levels, which makes them accessible to communities in financial distress. For many boards, the ability to act quickly and prevent further property deterioration outweighs the higher cost of borrowing.
Q33. How fast can a private loan be approved?
Private loans can typically be approved within 3 to 4 weeks. Some lenders, such as Samtov Finance, advertise approval time as fast as 24 hours. Because private lenders streamline underwriting and require less documentation, associations can move forward with projects far faster than with a bank loan. This speed is especially valuable for emergency repairs, safety compliance deadlines, or situations where delaying work would increase long-term costs.
Q34. What are the trade-offs of private loans?
The main trade-off is cost. Interest rates on private loans are usually higher than bank loans, and terms may be shorter. However, the benefits include speed, flexibility, and willingness to fund associations that traditional banks would turn away. For boards balancing urgent needs with limited options, private loans are often the only practical solution.
Q35. Are private loans riskier for associations?
Not inherently. The repayment structure is still tied to assessments, just like a bank loan. The difference lies in terms and cost. As long as the board adopts realistic budgets and communicates repayment plans to owners, private loans can be a responsible and effective financing tool.
Q36. What flexibility do private lenders offer?
Private lenders often provide flexible features such as:
Interest-only repayment for the first year
Deferred repayment to allow construction to progress before costs hit owners
Phased funding to match project stages
This flexibility allows associations to manage cash flow more effectively while still completing necessary work.Pre-payment option to allow the association to refinance with a lower rate bank loan down the road.
Q37. Can small associations get private loans?
Yes. Private lenders are often willing to work with smaller communities that banks ignore. Whether it’s a 10-unit building or a small HOA with fewer than 20 homes, private lenders assess need and repayment ability on a case-by-case basis, making financing accessible to associations of all sizes.
Q38. Do private lenders require reserve studies?
Private lenders may request reserve studies or engineering reports, but they are usually more flexible than banks if such documents are outdated or missing. Instead, they may rely more heavily on contractor bids, inspection reports, and the urgency of the project.
Q39. Are private lenders regulated like banks?
Private lenders are not regulated in the same way banks are, but they are still subject to state lending laws and must operate under clear contracts. Associations should always review loan documents carefully and seek legal counsel to ensure terms are fair and transparent.
Q40. When is a private loan the best option?
Private loans are ideal when time is critical, reserves are low, or the bank process has failed. They are also the go-to solution when associations face emergency repairs or government-mandated compliance deadlines that cannot be delayed. Many associations can use private loans as a temporary funding bridge for 1-2 years and then refinance the private loan with a lower rate traditional bank loan.
Part 5: HOA Advanced Topics
Q41. Can an HOA refinance an existing loan?
Yes. Associations can refinance loans to secure better interest rates, extend repayment terms, or consolidate multiple loans into one. Refinancing can free up cash flow, reduce assessment increases, or align repayment with the lifespan of improvements. Boards should regularly review whether refinancing is in the community’s best interest. Speak with a private lender to learn about your prepayment options.
Q42. How do milestone inspections affect HOA loans?
In Florida and other states, new laws require milestone inspections and structural integrity reserve studies (SIRS) for buildings over a certain age. These inspections often uncover major repair needs that associations cannot fund from reserves alone. Loans provide a pathway for boards to complete legally required repairs without overwhelming owners with massive special assessments.
Q43. What is a reserve study and why does it matter for loans?
A reserve study is a professional evaluation that estimates future repair and replacement costs for major components, such as roofs, elevators, and parking lots. It helps associations plan funding strategies over 20–30 years. For lenders, reserve studies demonstrate fiscal responsibility and provide insight into upcoming financial needs, making them a critical part of the loan application.
Q44. Can an HOA default on a loan?
Yes, though it is rare. Defaults occur when boards fail to collect assessments or manage budgets properly. In such cases, lenders may renegotiate terms, require stricter collection practices, or pursue legal remedies. Responsible boards that communicate clearly with owners and maintain strong collection procedures significantly reduce the risk of default.
Q45. Do owners vote on loans?
In many associations, yes. Governing documents often require a membership vote for large financial obligations. In other cases, boards may have authority to approve loans on their own. Boards should consult governing documents and, when in doubt, seek legal counsel to confirm whether owner approval is required.
Q46. How do loans affect property values?
Well-financed improvements generally protect or increase property values. Buyers are more attracted to communities with updated infrastructure, safe buildings, and modern amenities. Conversely, communities that delay repairs due to lack of funding often see declining property values and reduced buyer interest.
Q47. Can multiple loans be taken at once?
Yes, but lenders prefer associations to demonstrate they can manage one loan successfully before layering on additional debt. In some cases, phased projects are better funded through a single loan with staged disbursements, rather than multiple separate loans.
Q48. How do delinquent owners impact loan repayment?
High delinquency rates reduce the cash flow available for repayment and make lenders wary. Associations should have clear policies for addressing delinquencies, including late fees, liens, and foreclosure procedures. Demonstrating strong collection practices reassures lenders that the association can enforce repayment obligations.
Q49. What role does communication play in the loan process?
Clear communication with owners is critical. Boards should explain why a loan is needed, how repayment will be structured, and how projects will benefit the community. Transparent communication builds trust, reduces opposition, and increases compliance with new assessment schedules.
Q50. What should a board do first before seeking a loan?
The board’s first step should be to clearly define the scope of the project and confirm that financing is necessary. Next, gather essential documents like governing bylaws, financial statements, and contractor estimates. Passing a board resolution authorizing loan exploration ensures legitimacy. Finally, consult with specialized HOA lenders or advisors early in the process to save time and avoid surprises.
Conclusion
Securing a loan for an HOA or COA can feel complex, but with preparation and the right knowledge, the process becomes far more manageable. Whether your community pursues a bank loan for long-term cost savings or a private loan for immediate funding, financing allows associations to maintain safety, protect property values, and enhance quality of life for all residents.