Economic conditions over the last several years have left many HOAs short on capital needed for such items as necessary repairs, upgrades and improvements. With proper documentation HOAs can obtain bank financing for these items.
Loans to HOAs do not typically necessitate personal guarantees or liens on individual units. A bank will generally collateralize a loan to an HOA by taking an assignment of common area charges and assessments and/or a pledge of some amount of cash balances that may be maintained by the HOA. It may be necessary for the association to increase the amount of the monthly assessments that the homeowners are required to pay in order to support the loan payment.
Common requirements for an association to qualify for a loan include:
- The developer cannot be in voting control of the association’s board of directors and may not have ownership of more than 10% of the annual budget.
- Unit owner delinquencies on payments owed cannot exceed 10% of the total units that are more than 60 days past due.
- The HOA should have at least 20 units.
- Absentee owners should not exceed 40%.
- A budget increase to service the desired loan should not exceed 50%.
A lender that specializes in providing services to homeowners associations is Arch Capital Solutions.
Learn More about Arch Capital Solutions and Start and HOA Loan Application.