The First Question New Board Members Should Ask About HOA Loans

New board members ask us the wrong question first almost every time. They call in January, right after their term starts, and they ask what a fair HOA loan rate is or which lender is the best. Neither is the right first question. The right first question is this: is our reserve study realistic under current inflation and construction cost assumptions?

Everything else follows from the answer. If the reserve study is realistic, a loan may or may not be needed and the numbers will tell the board which. If the reserve study is not realistic, no rate shopping in the world will fix the underlying problem. I have said this to every board that asks, and I will say it again this January.

Why the reserve study is the whole ballgame

An HOA reserve study estimates what major components of the property will cost to replace and when. Roofs, elevators, pools, paving, mechanical systems. The study also estimates what the association should be setting aside each year to fund those replacements without a special assessment.

Construction costs have moved substantially since 2022. Roofing labor is up. Elevator components are up. Concrete and asphalt are up. A study completed in 2022 or 2023 that has not been refreshed almost certainly underestimates the true cost of the next major project. That gap is where surprise special assessments come from.

How to actually assess the study

Pull the current reserve study out of the shared drive. Look for three specific things.

First, the date. Reserve study professionals generally recommend an update every three to five years, and some states require it more often, so a study from 2023 or earlier is due a look in 2027.

Second, the inflation assumption. Older studies often carry an inflation assumption that construction costs have since outrun. If the study assumed one rate and reality ran well above it, the projected balances are off by a lot.

Third, the fully funded percentage. The study should show what percentage of the theoretically ideal reserve balance the association actually has. Lenders weigh that percentage against the rest of the file rather than treating it as a pass mark, and most associations that come to us are not fully funded; what matters is whether the board has a credible plan and is following it.

What to do if the study is stale

Commission a refresh. Budget for it in the 2027 operating plan. The cost depends on the size of the association and the scope of the components being reviewed, and it is a small line item compared with what happens if the board makes a financing decision based on stale data.

What to do if the study is current but the funding is low

This is where the loan question actually becomes appropriate. A board with a current study and a funded percentage below where its study says it should be has real options: raise assessments, pass a special assessment, take a loan, or some combination. The right combination depends on the community's cash flow, the timing of upcoming projects, and the tolerance of owners for either higher monthly payments or one-time hits.

This is when boards should call us. We help think through the sequencing. We run the scenarios. We shop the deal across the network. There is no upfront cost, and we are paid at closing. If the loan doesn't close, there is no fee. Our work since 2016, with lenders in all fifty states, means we have seen almost every version of this situation.

Practical follow-up steps for a new treasurer

• Read the current reserve study cover to cover in one sitting. It usually takes ninety minutes.
• Read the last two audited financials. Focus on the reserve balance line and the operating fund line.
• Ask the property manager for the delinquency aging as of December 31.
• Meet with the reserve specialist who did the last study. Ask them if it needs a refresh.
• Only then, and not before, start thinking about whether a loan makes sense.

Why we are telling you not to start with the loan question

Because most of the loan work we do at HOA Loan Services is helping boards make good decisions, and a good decision starts with good data. A board that shops rates without understanding whether its reserves are adequate is optimizing the wrong thing. A board that engages us after doing the reserve work is a board we can help quickly and cleanly.

We're HOA loan strategists. We work across the network of HOA lenders. Our incentives are aligned with the board because we only get paid when the board closes on a loan we sourced. That gives us the freedom to say things like the paragraph above, which no direct lender is going to say.

The one question again

Is our reserve study realistic under current inflation and construction cost assumptions?

Answer that first. Then, if a loan is part of the answer, book a consultation with our team or run the numbers in our HOA loan calculator. Welcome to the board.