How Do HOA Loans Work?


If you’re a Homeowners Association (HOA), Common Interest Development (CID) or Planned Unit Development (PUD) officer, it’s important to understand how HOA loans work before you apply. We’ve answered some frequently asked questions to give you a high-level overview of HOA loans.*

Why Take Out an HOA Loan or Line of Credit?

HOA loans and lines of credit allow your association to fund a variety of projects and expenses, from common area improvements to maintenance and repairs. Many HOAs, CIDs and PUDs use loans or lines of credit as alternatives to a special assessment for unexpected expenses. You can even take out a loan to pay your annual insurance premiums upfront, if your insurance company offers a discount for paying for the year in advance.

What Are the Advantages of Taking Out an HOA Loan?

It spreads out the cost of common area improvements over time, and assigns the cost of those improvements to the people who are benefitting from them the most. It also allows repairs and maintenance to be performed quickly, at today’s prices.

What Are the Disadvantages of Taking Out an HOA Loan?

In some cases, HOAs, CIDs and PUDs may need to increase homeowners’ monthly assessment fees to make the loan payments.

How Does Alliance Association Bank Structure HOA Loans?

A non-revolving line of credit is used during the construction phase (typically six to 24 months long), with interest-only payments required. This line converts to a term loan once the project is complete, typically from five to 15 years in length.

Does an HOA Loan Require Collateral or Other Security?

Typically, if the loan went into default, we’d have the right to collect HOA, CID, and PUD assessments directly from the homeowners. Individual officers and homeowners are not required to personally guarantee an HOA loan or line of credit, because the borrower is the HOA, which is a separate business entity.

What Type of Information Do You Consider Before Approving a Loan?

To gauge credit risk, we’ll ask for information about:

  • Number of delinquencies, and the amount of money involved.
  • Liquidity (the amount of cash as a percentage of annual assessments and annual debt service).
  • Number of housing units, and how many are owner-occupied.
  • Whether monthly assessments will need to increase to pay for the loan.
  • HOA officers’ management and capital planning experience.

Can the Bank Place a Lien on Individual Units in the HOA, CID or PUD?

No. Individual units can be bought and sold, with no impact on the loan.

How Can I Learn More?

Contact our HOA loan experts with any questions at [email protected] or (888) 734-4567

You may also reach out to the senior director for your area:

* HOA loans and lines of credit are subject to credit approval.