Homeowners Associations (HOAs) carry a lot of fiscal responsibility and are charged with keeping their communities running smoothly. Usually, HOAs pay for maintenance, repairs, and improvement projects with their community members’ dues, and utilize their reserve funds for emergencies or unanticipated expenses. Still, if your HOA does not have enough in your capital fund to cover required expenses or don’t want to deplete your reserve, it may make sense to take out an HOA loan.
There are 4 types of HOA loans available, giving your association the flexibility to choose the type of loan and terms that best meet your needs. Consider the following:
- HOA Line of Credit (LOC) – An HOA LOC may be the ideal solution if your HOA has a short-term funding gap or just needs some temporary breathing room. Similar in concept to a credit card, an HOA LOC has a set maximum limit, but your HOA can easily access funds any time you need it, and you only pay interest on the funds you actually use. An HOA LOC typically has a variable interest rate, so your monthly payments may go up or down, and carries terms up to five years.
- HOA LOC with Conversion – An HOA LOC that converts to a term loan can offer the best of both worlds to HOAs that need access to immediate funding but want pay it off over a longer time period at a fixed rate. Typically, the HOA pays interest only on the amount used for the first 12 months, and then the balance of the loan converts to a term HOA loan. That loan can then be paid off over the set term, which can range from 3 – 20 years.
- HOA Medium-Term Loan – Term loans provide your HOA with the funds you need all at once (unlike a LOC, where you can take out the funds as you need them). The interest rate is locked, so your monthly payments are always the same – which is helpful when planning a budget. A medium-term loan is best if you only need funds over a 3 – 5-year period. While you may pay more per month for a medium-term loan than a long-term loan, you can pay off your debt in a shorter time-period.
- HOA Long-Term Loan – HOAs that are taking on substantial, long-term projects such as land acquisitions or significant structural repairs should consider a long-term HOA loan. With maturities ranging between 7 -20 years, these loans function like mortgages and are funded in their entirety upon closing. This gives your HOA a sum of money upfront, which is then paid off (interest + principal) over a longer timeframe. You may get your best interest rate with a long-term loan, but it may take many years to get out of debt.
There are many benefits for HOAs who decide to take out an HOA loan, including fast access to needed funding, less immediate impact on homeowners in the community, and the ability to quickly address a broad range of community issues. (To learn more, read The Advantages of Taking Out an HOA Loan).
Valley is an industry leader in HOA banking, and can create a customized loan program that meets your HOA’s unique needs. With years of experience and expertise dealing with HOAs, property managers, and condo associations, our team will work with you to get you competitive terms and the funding you need. Learn more about our loan options, or contact us to get started.
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