When to Begin the HOA Funding Journey: 3 Factors to Consider

Loan acquisition of any kind is a time-consuming process, and HOA loans are no exception. But “time-consuming” is vague and doesn't help HOA board members understand or plan the actual process. Once a board comes to a consensus on starting an HOA loan acquisition, creating a timeline for the application process will be a crucial step in ensuring that everything runs smoothly. 

An HOA funding timeline needs to consider three crucial factors:

• Financial knowledge, like the financial health of the community & loan cost
• General requirements of lending institutions
• Project scope and timeline

But most importantly, it helps to work backward to really understand the time commitment your community will need to be considerate of and how best to navigate that time.

Financial Knowledge

Lenders typically want to see that the HOA is financially stable and has a reliable track record of paying bills. Before applying for a loan, it's essential to review the HOA's financial records and ensure that it has enough cash reserves to cover any unexpected expenses that may come up during the project. If the HOA has a history of financial instability or has struggled to pay its bills in the past, it may be more challenging to get approved for a loan.

The other side of the financial conundrum is predicting the cost of a capital improvement project. One of the first steps is to conduct necessary inspections before the project begins. Inspections can identify potential issues or complications that may arise during the project, or that will need to be included in the project scope for safety reasons. They can also help keep the project on track for timely and budget-friendly completion. For instance, if an HOA is planning to replace the roof on a building, they may need to conduct a roof inspection to determine the extent of any damage or issues that need to be addressed.

Once inspections have been completed and the full scope of the project has been realized, getting vendor quotes from contractors who specialize in the type of work needed will round out the financial necessities of the loan. When soliciting quotes, it will be important to provide detailed information about the project, including the inspection notes. This will help ensure that the quotes they receive accurately reflect the work that needs to be done. Additionally, HOAs should ask vendors about any potential cost overruns or unexpected expenses that may arise during the project.

General Lending Requirements

Different lenders have different requirements for HOA loans. Some lenders may require a certain credit score, while others may need specific financial documents or information. It's crucial to be aware of these requirements not only so that you can meet the needs of your prospective lenders, but to ensure that you have everything you need before applying for a loan. 

The longer this process takes, the less likely it is that you'll be able to meet deadlines set by lenders who want their money back quickly. Gather some basic community documents and financial information can go a long way in keeping to a tight timeline:

• financial statements
• governing documents
• insurance policies
• any other items related to your HOA or condo association's finances

With some standard documents ready to go, the time it will take to get the application process started will be greatly reduced, giving you a better grasp of your project timeline. It's also important to consider that 30 to 90 days is typical, and some loans take longer for a variety of reasons. So with that baseline, having those documents in hand in advance can be the difference between a loan process taking only one quarter, or taking multiple.

Scope and Timeline

When determining the scope and timeline of the capital improvement project, all of the knowledge attained above will help tremendously. Once you have a handle on your community's financial standing and projected improvement costs, and have gathered important documentation, that information can be used to sort out how long the capital improvements are expected to take, giving you an idea of the size and scope of the project overall. When generating a timeline, that scope will be one of the most important pieces of the puzzle. 

Another will be thinking about the season in which the improvement will take place. For instance, if you're planning to build a new facility, it may be more challenging to get approved during certain months when there is a higher demand for construction loans. Or, if there are pertinent dangers, like hurricane season for coastal communities, or ground thawing problems for northern states, that can also impact the completion time of projects, extending loan lengths potentially significantly. Understanding the market conditions and the time of year can help you determine the best time to apply for an HOA loan.

Preparation and Guidance Are Key

While no one can provide a definitive timeline of when to seek HOA funding, communities can take steps to better prepare for the lengthy process. Taking all of these factors into account when the time comes to start searching can help each board build a unique timeline that includes relevant information about their community, their seasonal influences, and their financial obligations. This will help ensure that the HOA can secure the financing it needs to complete the project and pay it back on time without putting undue stress on the HOA's finances. 

But you don't have to handle this all alone. HOA Loan Services specializes in HOA lending, and has placed 300+ loans for associations since 2016. Our goal is to help HOAs navigate the complicated process of loan acquisition from start to finish with as little friction as possible. Tell us about your project and we'll say whether an HOA loan fits.