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Guidelines for HOAs and Condominium Associations to Qualify for an HOA Loan or a Condominium Association Loan

HOA Loans and Condominium Association loans, like any commercial loan, have some terms that are absolutely required and are non-negotiable. Realizing that Home Owner Associations and Condominium Associations are not commercial businesses there are areas where a skilled lender can be very creative when structuring the loan.

Some of the standard requirements are outlined below:

·         The developer (legally known as the Declarant) cannot be in voting control of the home owner association or condominium association Board. Additionally, the developer may not have direct ownership of more than 10% of the annual budget. This is very uncommon in established HOAs and condominium associations as the developer usually sells his/her interest in the properties once the building is completed.

·         The rate of common fee delinquency is closely scrutinized. If more than 7% of the total number of condominium units or home owners are more than 60 days past due, the HOA or condominium association is very likely going to be turned down for a HOA loan or a condominium association loan.

·         Bigger is better in terms of risk distribution as far as the lender is concerned. For this reason, it is far more difficult for a smaller sized HOA or condominium association to qualify for an HOA loan or a condominium association loan. Traditionally, HOAs or condominium associations with less than 25 units will face more difficulty attaining an HOA loan or a condominium association loan than will a larger sized HOA or condominium.

·         HOAs and Condominium associations where units are largely owned by investors are also a red flag for lenders. For this reason, a lender will require a review of active leases within an HOA or condominium association. If 40% or more of the units are being rented, the HOA or condominium association will likely not qualify for a loan due to the relatively low level of owner occupancy. Similarly, if any one person owns in excess of 30% or has voting control of more than 10% of the homes or condominiums within an association, the HOA or condominium association will likely not qualify for an HOA loan or a condominium association loan.

·         Finally, the terms of the loan payback will impact the ability of any HOA or condominium association to qualify for a loan. Debt service should not exceed 100% of the proposed budget increase, which is a rare occurrence. However, if the debt service does cause such an increase, the HOA or condominium association may be asked to demonstrate that its members can handle the increase by instituting the higher fees for a minimum of 4 collection cycles (likely to be monthly) and demonstrating that the delinquency rate remains below the 7% delinquency threshold previously mentioned.