5 Questions Every Board Should Ask Their Loan Broker

Asking the right questions to ask HOA loan broker candidates is the cheapest due diligence your board will ever do. Five questions, ten minutes, and you can tell a broker who will work for your community from one who will not. We have been on both sides of this conversation for 30 years, and the answers that should set off alarms are surprisingly consistent.

Use these in your next vendor interview. Watch for the red-flag answers as much as for the good ones.

Question 1: How Are You Paid, and By Whom?

Compensation structure is the first signal of every other answer that follows. A broker paid by the board upfront has an incentive to close any deal that gets to term sheet. A broker paid by the lender at funding has an incentive to close a deal the board accepts, which is a different incentive. Neither is automatically wrong, but the board needs to know which structure is in play.

The HOAL model is no-close-no-pay. Boards pay nothing if a loan does not close. Our compensation comes from the lender at funding. That structure means we have no reason to push a marginal deal across the line, because the only thing that pays is a closed loan the board signed willingly.

Red-flag answer: any version of "do not worry about it" or "the bank pays us, you do not need to know the amount." Compensation should be specific, in writing, and aligned with the board's interest.

Question 2: How Many Lenders Are You Actually Shopping?

A broker who shops two lenders is barely better than a board that calls one bank. The point of using a broker is to access a network deeper than a treasurer can build on their own. We routinely shop 6 to 12 lenders depending on deal size and geography, and on larger deals (the $20M and $30M condo association deals are examples) we sometimes go beyond that.

Ask for the names of the lenders. A real broker can list them. A broker who hedges or gives a number without names is either exaggerating the network or is committed to a small set of friendly relationships.

Red-flag answer: a vague claim like "we work with all the major HOA lenders" without specific names, or a list that turns out on follow-up to be two or three banks plus a credit union.

Question 3: What Happens If Our Reserve Study Is Weak?

This question separates brokers who actually know HOA underwriting from brokers who treat HOAs as another commercial loan category. A weak reserve study (under 30 percent funded, or older than 36 months) is one of the most common credit issues we see. A competent broker has three answers ready: which lenders in the network will look past it for the right credit profile, what amendments to the reserve study or funding plan can move the file forward, and what the rate penalty is likely to be.

A broker who says "we will figure it out" is winging it. The reserve study question is where lender appetite splits hardest, and the answer should be specific.

Red-flag answer: deflection to "every lender is different" without any concrete strategy. Real expertise sounds like "Lender A will not touch it below 40 percent, Lender B will go to 25 percent if you show a 20-year funding plan, and the rate penalty is typically 40 to 60 basis points."

Question 4: Can We See a Sample Term Sheet?

A broker who has closed real deals can produce a redacted sample term sheet within 24 hours. A broker who cannot has either not closed many deals or does not have the document management discipline to find one. Both are problems.

The sample term sheet also gives your board its first look at the structural elements you will negotiate: rate, term, amortization, balloon, prepayment penalty, covenants, fees. Reading one before you have your own quote is the cheapest education your board can get.

Red-flag answer: "term sheets are confidential, we cannot share." Redacted term sheets are routine. We share them with prospective boards as part of every initial consultation. The "it is confidential" answer is sometimes code for "we have not closed many."

Question 5: Who Do You Walk Away From?

This is the question that surprises most brokers, and the answer tells you whether the broker has the spine to protect your community from a bad deal. A broker who will close anything is not your advocate. The right answer names specific deal patterns the broker declines.

Our list includes communities where the board has not done a current reserve study and refuses to commission one, deals where the only feasible structure has a yield-maintenance prepayment that traps the community for a decade, and projects where the underlying construction issue (often a litigation matter) is not disclosed to the lender. Walking away from those deals is part of the job.

Red-flag answer: "we do not walk away, we find a way." That is a sales line. A broker who has never walked from a deal has either not done many deals or is willing to close ones the board will regret.

Putting It Together

Ten minutes of questions, five specific red flags to watch for. If the broker passes all five with substantive answers, you have someone worth a longer conversation. If they stumble on more than one, keep looking.

If you want to put these five questions to our team directly, Larry Kirschner and Ben take inbound consultations. Schedule a free consultation with HOA Loan Services. We answer all five on the call, and your board pays nothing if a loan does not close.