The Home of HOA Banking
The Home of HOA Banking

The Advantages of Taking out an HOA Loan

/ 5 min read

Homeowners Associations (HOAs) are responsible for the care, maintenance, and repair of community-owned property and assets – as well as managing finances, collecting dues, hiring contractors, paying vendors, and administering the reserve fund, which is set aside for emergencies or unanticipated expenses.

Sometimes, a large-scale project or unexpected expense comes up that can’t be covered by an HOA’s normal operating budget, and there are risks associated with running your reserve fund too low. You don’t want to be in a position where your community has no backup if a disaster strikes.

That’s why, in a number of situations, HOA boards may want to consider taking out an HOA loan. Some of the advantages of an HOA loan include:

  • Faster funding – When HOA decides to use the reserve fund for a specific project, they may choose to take the money out in small increments rather than depleting the fund. This means that improvements, repairs, or renovations may take significantly longer to complete. With an HOA loan, you receive the full amount of funding you need at one time, so your project can be completed right away. Additionally, you’ll be able to get the work done at today’s prices as opposed to paying more in the future.
  • Less immediate impact on homeowners – Homeowners pay dues to their HOAs to help fund the many expenses required to keep a community running smoothly. Sometimes HOAs will impose a special assessment which allows them to tack on an additional charge to their normal dues to help pay for needed work. A special assessment can require homeowners to come up with a significant amount of money upfront and often within a short period of time. Your community’s homeowners may struggle to pay these additional costs. With an HOA loan, homeowner’s dues may also increase, but since HOA loans are paid over longer periods of time, the monthly increase in dues may be easier to manage.
  • Multiple uses – HOA loans can be used to cover a wide range of expenses such as common area improvements, ongoing maintenance, repairs, or unexpected expenses (like storm damage). You can even take out a loan to do things like acquire more land or pay your yearly insurance premiums in advance, which may get you a discount.
  • A more efficient and effective board – When your HOA board takes out an HOA loan, it can more quickly address issues, make improvements, and show their community that they are able to get results. Your community will benefit from the work done and rest assured that their dues are being put to good use.

If you’re not sure if you should consider an HOA loan for your specific project, see Financing HOA Projects: When to Borrow & When to Impose a Special Assessment. You additionally should enlist an expert for advice. Our team at Valley has a wealth of experience and expertise in HOA banking, working closely with property managers and HOAs to provide customized financial solutions to meet your specific needs. To see how we can help you, fill in our loan contact form and we'll be in touch.

We would love to hear from you, especially if you have any questions.

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