How to Get an HOA Loan

Key Takeaways

• Check governing documents first to verify your board’s authority to borrow and determine if member votes are required before applying
• Financial preparation is critical – lenders require 1-3 years of budgets, statements, reserve studies, and delinquency reports showing stable management
• Meet minimum thresholds, including 20-25 units, 50%+ owner-occupancy, and delinquency rates below 10-15% to qualify with most lenders
• Plan for 4-6 months from initial board planning through document gathering, lender review, member approval, and final closing

 

What do you do when your community’s emergency fund can’t cover an emergency?

Last week, your engineering report flagged structural issues in three buildings. The fix costs $250,000. Your reserves sit at $110,000. Homeowners are already stretched with recent assessment increases.

A special assessment large enough to cover the gap would cause financial hardship for dozens of families. But waiting could turn a manageable repair into a catastrophic failure.

This is when boards need to know exactly how to secure an HOA loan. Let’s break down the process.

 

 

Step 1: Verify Your Authority to Borrow

Before contacting any lender, confirm your board has legal authority to take on debt.

Review your association’s governing documents – bylaws, declarations, and CC&Rs. These documents specify whether your board can independently authorize a loan or if member approval is required.

Some associations allow board-only approval for loans under certain dollar thresholds. Others require a majority or supermajority of member votes for any borrowing.

Know these loan requirements before starting. Lenders verify this authority during underwriting.

Step 2: Assess Your Association’s Financial Position

Lenders evaluate HOAs using specific criteria. Before applying, honestly assess where your association stands:

Unit Count and Occupancy

Most lenders require 20-25 units minimum. They prefer 50%+ owner-occupancy, as owner-occupied communities demonstrate greater stability.

Delinquency Rates

Banks want delinquency rates below 10-15% of units more than 60 days past due. High delinquency signals collection problems that threaten loan repayment.

Reserve Funding

Associations should maintain reserves equal to at least 10% of gross annual income. Current reserve studies with adequate funding levels strengthen applications.

If your association doesn’t meet these thresholds, focus on improving these metrics before applying.

Step 3: Secure Board Approval

Your board must pass a formal resolution authorizing the loan application. This resolution should specify:

• The loan amount requested
• The project or expense being funded
• Authorization for specific board members to sign documents
• The proposed repayment method (assessment increase or special assessment)

Document this resolution in your board meeting minutes. Lenders require proof of board authorization.

Step 4: Obtain Member Approval If Required

If your governing documents require member votes for borrowing, schedule this promptly.

Provide homeowners with clear information about the project necessity, loan terms, estimated costs, and how repayment affects their assessments. Transparency during this phase prevents resistance and delays.

Most associations requiring member votes need simple majority approval, but verify your specific requirements.

Step 5: Gather Required Documentation

Lenders conduct thorough financial reviews. Prepare these documents:

Financial Records

• Annual budgets (current and prior 1-3 years)
• Year-to-date financial statements
• Prior year-end financial statements
• Monthly or quarterly financial reports

Reserve Documentation

• Current reserve study
• Reserve fund balances
• Funding plan and contribution history

Assessment Information

• Current assessment amounts per unit
• Delinquency reports showing payment status
• Any planned assessment increases
• Special assessment history

Governance Documents

• Bylaws, CC&Rs, articles of incorporation
• Board resolution authorizing the loan
• Member vote results, if applicable
• List of all unit owners with addresses

Project Details

• Contractor bids or estimates
• Scope of work documentation
• Timeline for project completion

The more organized and complete your documentation, the faster the approval process moves.

Step 6: Research and Contact Lenders

Not all banks offer HOA loans. Focus on lenders specializing in community association financing:

• National banks with dedicated HOA lending programs
• Regional banks experienced in association lending
• Credit unions serving your geographic area
• Specialized association lenders

Contact multiple lenders to compare terms, loan rates, and requirements. Ask about their typical approval timeline, required documentation, and minimum/maximum loan amounts.

Step 7: Submit Your Application

Complete the lender’s application package with all required documentation. Most lenders have specific application forms for HOA loans.

Expect questions about your association’s management structure, maintenance history, major capital projects, and long-term planning. Complete, honest responses expedite the review process.

Step 8: Navigate the Underwriting Process

Lenders conduct comprehensive reviews, often taking 30-60 days.

They verify information in your financial statements and reserve studies. They may contact board members or property managers for clarification. They review governing documents to confirm borrowing authority.

Some lenders conduct site visits or request additional documentation during underwriting. Respond promptly to any requests.

Step 9: Review and Accept Loan Terms

Once approved, carefully review the loan offer:

• Interest rate (fixed or variable)
• Loan term and repayment schedule
• Any origination fees or closing costs
• Prepayment penalties, if applicable
• Requirements for segregated repayment accounts

Have your association’s attorney review the loan documents before signing. Some lenders require an opinion letter from your attorney confirming your authority to borrow.

Step 10: Close and Receive Funds

At closing, authorized board members sign lthe oan documents. Funds are disbursed according to your loan structure – lump sum for term loans, or established borrowing capacity for lines of credit.

Your project can begin, and loan repayment starts according to the agreed schedule.

Setting Your HOA Up for Success

Getting an HOA loan requires thorough preparation, organized documentation, and patience with the process – so don’t be surprised if it takes several months. But once your loan is secured, your HOA can move forward with important projects and improvements without straining the association’s budget.

Associations with up-to-date financial records, well-funded reserves, and low delinquency rates have the smoothest approval experiences. If your community doesn’t currently meet these standards, focus on improving financial management before applying.

Maintaining accurate financial records and tracking reserve funding requires comprehensive management tools. HOA Start provides the financial management platform boards need to track budgets, monitor reserves, and generate the reports lenders require during loan applications. Schedule a demo to see how organized financial systems simplify major capital decisions.

FAQ

What credit score does an HOA need for a loan?

• HOAs don’t have personal credit scores like individuals
• Lenders evaluate the association’s financial health and payment history
• Delinquency rates serve as the primary “credit” indicator for associations
• Well-managed associations with low delinquency qualify more easily
• The HOA’s financial statements and reserve funding matter more than traditional credit metrics

How long does HOA loan approval take?

• The complete process typically requires 4-6 months from start to closing
• Internal approvals and member votes can take 1-2 months
• Document preparation and submission require 2-4 weeks
• Lender underwriting typically takes 30-60 days
• Final closing and documentation adds 2-4 weeks
• Organized documentation and experienced HOA lenders can accelerate timelines

Can small HOAs under 20 units get loans?

• Most major banks require 20-25 unit minimums
• Some community banks and credit unions serve smaller associations
• Smaller HOAs face higher scrutiny and more challenging approvals
• Strong financial management and low delinquency improve approval odds
• Local lenders with HOA experience offer more flexibility than national banks

What fees are associated with HOA loans?

• Origination fees typically range from 0.5% to 2% of the loan amount
• Application fees may apply (sometimes credited toward closing costs)
• Attorney review fees for document preparation and opinion letters
• Appraisal or site inspection fees, if required by the lender
• Recording fees for filing loan documents with local authorities
• Some lenders charge annual servicing fees for lines of credit

Do all board members need to sign loan documents?

• Only authorized signers designated in the board resolution sign documents
• Typically, the president and treasurer are authorized signers
• Governing documents may specify which officers can bind the association
• Lenders verify signatory authority during the approval process
• Some associations require co-signatures from multiple board members for large transactions

What happens if the HOA doesn’t qualify for a loan?

• Work on improving financial metrics before reapplying
• Reduce delinquency rates through better collection procedures
• Increase reserve funding to meet minimum thresholds
• Consider special assessments for immediate needs while improving loan readiness
• Explore alternative lenders with more flexible requirements for smaller or challenged associations