A Board Member's First Look at HOA Loans

Your HOA can borrow money. That fact surprises new board members more often than any other, so let us put it on the table first. HOA loan basics for board members start with this misconception, because once you understand that associations are creditworthy commercial borrowers, the rest of the process becomes a sequence of manageable decisions.

We have spent 30 years brokering loans for community associations across all 50 states. The communities range from 40-unit garden-style condos to the $30M high-rise we closed last year. The mechanics scale, but the fundamentals do not change.

Who Actually Lends to HOAs

A small set of community banks, regional banks, and credit unions specialize in HOA lending. Alliance Association Bank, Pacific Western, FirstService, and a handful of regional players make up most of the visible market. There is also a deeper network of lenders that do not advertise to boards directly and only accept files through brokers. When we shop a deal, we are typically pinging 6 to 12 of those institutions depending on loan size and geography.

What no one tells a first-term treasurer: the headline rates you see on a direct lender's website are almost never the rate you would actually be quoted after underwriting. They are conservative anchor numbers. Real pricing depends on your reserve study, your delinquency, and which lender happens to have appetite in your asset class that week.

What Lenders Underwrite

An HOA loan is a commercial loan to a non-profit corporation (the HOA itself), secured by the association's right to levy and collect assessments. The building is not the collateral. Individual unit owner credit is not the collateral. The collateral is the assessment revenue stream.

That means lenders underwrite three things primarily. First, the reserve study, because it tells them what other capital projects are coming and whether your loan competes with future obligations. Second, the delinquency rate, because a 7 percent 90-day delinquent association looks very different from a 2 percent one. Third, the governance documents, because some CC and Rs limit special assessment authority in ways that change the credit picture.

The Reserve Study Conversation

A reserve study that shows 50 percent or higher funded percentage is generally a green light for most lenders. Below 30 percent, you will get rejected by some lenders and priced punitively by others. Between 30 and 50 percent, the decision depends on the strength of the funding plan and whether the board has a track record of following it.

The reserve study is not a one-time document. Lenders want to see it updated within the last three years, ideally within the last 18 months for any loan over $2M.

What Changes Between $500K and $30M Loans

At $500K, you are usually talking to one or two community banks, the documents are relatively standard, and closing takes 45 to 60 days. The rate spread is typically wider because the lender's fixed costs are spread across a smaller deal. We have closed sub-million dollar loans where the all-in rate was 50 to 75 basis points above the rate on a $5M loan to a similar association.

At $5M, the market opens up. Five to eight lenders will compete, the rate sharpens, and the legal documents start to include negotiated covenants. At $20M and above, you are in territory where syndication and participation arrangements come into play, lender counsel is a fixture, and the closing process can stretch to 90 or 120 days. Our $20M condo association deal and the $30M one both involved a primary lender plus a participation partner.

The One Decision That Matters Most

The single most consequential decision a board makes is not the rate, the term, or the prepayment structure. It is whether to call one bank directly or run the deal through a broker who shops the lender network.

If you call one bank, you will get one quote. That bank's underwriting box is what it is; if your file fits, you get a reasonable rate, and if it does not, you get declined or priced poorly. If you run the deal through a broker, you get 4 to 8 quotes and you see the actual spread of the market. The difference between the tightest quote and the median quote on a $5M deal is often 25 to 50 basis points, which is $50,000 to $100,000 in interest over the loan life.

The compensation structure matters here. We are a broker advocate, not a lender. Boards pay nothing if a loan does not close. Our compensation comes from the lender at funding, which means we only get paid if the deal closes at a rate the board accepts. If a board calls a bank directly, the bank's loan officer is paid by the bank to win the deal at the bank's pricing. Those are different incentives.

What to Ask Before Your Next Meeting

Walk into your next board meeting with these questions. What does our reserve study show as funded percentage and when was it last updated? What is our 90-day delinquency rate by dollar amount, not just by unit count? Are there any CC and R restrictions on special assessment authority that a lender would flag? Have we talked to more than one source of capital?

Those four questions will move your board further than any rate-shopping spreadsheet. The numbers come into focus once the underlying credit picture is clear.

If you want a 30-minute walk-through of where your association stands before you go to market, schedule a free consultation with HOA Loan Services. We will tell you what we see, what a lender is likely to see, and whether the timing makes sense to proceed.