An HOA Loan Is Not Your Mortgage: Here's Why
Your assessments are the collateral, not the building and not anyone's home. In the loans we arrange, no owner's credit is checked, and board members sign on the association's behalf rather than personally. The obligation runs with the association, so an owner who buys in next year inherits their share of the repayment. Members usually have to approve the borrowing before a board can proceed.
Community Association board members come from all walks of life. You might be a teacher, a veteran, a retired welder, or a truck driver. If your board is one of the lucky ones, you might have a member that has a background in finance. But even in those cases, getting an HOA loan for a capital improvement project, or an emergency repair or even to help your community stay operational is often far enough out of every board member's experience that it can be daunting.
However, there is one thing all HOA and Condo board members have in common - they are homeowners. And as such, all board members either have, or have had in the past, a home mortgage. For many homeowners, the mortgage is the biggest loan they have experience with, and so it makes perfect sense when seeking an HOA loan that you might compare it to your mortgage to help you make sense of it.
An HOA loan shares some similarities with a mortgage. Like a mortgage, an HOA loan is a debt the community takes on. It carries interest over a term, and the HOA will need to be prepared to pay it back. However, if you equate your HOA loan to your mortgage, you are likely going to miss out on some key differentiators:
Members Need to Buy-In to an HOA Loan
As with any decision your board makes, you need to start by reading the governing documents. Most community associations have provisions laid out for seeking outside funding. Usually, you will need member approval, or at least notify members prior to taking on a community association loan. Don’t wait until your need for the funds is desperate, as it may take time to get member approval.
An HOA Loan May Not be a Loan at All
While HOA loan is a catch-all term that has been adapted to encompass several types of HOA financing, there are several different types of HOA financing available to associations.
Your Assessments are the Collateral
Unlike a mortgage, where the property itself is the guarantee for your loan, in an HOA loan, the future income of the community (monthly assessments) are what is typically used for collateral on your loan. That means the lender could collect assessments directly from your homeowners if your association fails to pay.
Payback Applies, Even to New Owners
Unlike a special assessment, where the association charges a lump sum to an owner, an HOA loan is paid back over the term of the loan. This means that even if an existing owner sells their home and a new owner takes over the payment of the monthly assessments, the new owner still has to pay the additional amount to cover the loan payments. Our HOA loan calculator shows what that additional amount is likely to be per unit.
No Credit Score Required (but there are other things)
HOA and condo association loans are not as easy to secure, typically because they don't have a credit history or scoring system. However, lenders still consider certain factors when making these types of loans.
Before You Seek an HOA Loan, Get Professional Help
If your association is seeking financing, don’t make the mistake of treating an HOA loan like a mortgage. HOA Loan Services specializes in helping community associations procure loans. As HOA loan strategists, we can help your board of directors navigate the intricacies of securing financing to ensure the financial health of your community. Contact us today to get started.
Boards also ask
Do all owners have to vote to approve the loan?
It depends on your CC&Rs and state law. Many boards can borrow without a full membership vote; some require one. We help you read your documents and plan the approval path before you commit.
Are liens placed on individual homes?
No. There is no security interest in any home and owners keep clear title. The loan is secured by the association’s right to collect assessments, which is why lenders underwrite your budget and delinquency rate so closely.
Does anyone’s credit score matter?
In the loans we arrange, no individual’s credit is pulled: not board members, not homeowners, not the property manager. Associations do not have credit scores in the consumer sense either. What stands in for one is your financial record: assessment collection history, delinquency rate, reserve funding level, and whether past obligations were met. That is the association’s credit, and unlike a personal score, your board can improve it deliberately.
Is anyone in the association individually liable for the loan?
No. The association is the borrower. In the loans we arrange, board members sign on the association’s behalf, not personally: there’s no personal guarantee, and their credit isn’t pulled. The loan does not appear on any individual’s credit or affect their mortgage.
Still deciding? Talk it through with us.
We’ll talk with any board at no charge and no obligation, just answers.