HOA loans for construction

Started by AdrienneP • 2 replies • 1045 views

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AdrienneP (Washington)
Posts: 28

Posted:

Greetings all!

My HOA is considering taking out a loan to finance community building construction, secured against a special assessment to be voted on by members. I understand that construction loans are disbursed in installments against concrete progress in construction. What I'm wondering, though, is what if there are changes to the project? Right now we have a project scope, but we do not have detailed designs. Things - particularly the distribution of costs between different pieces of infrastructure -
may change once we get more detailed designs and costing. How closely do banks get involved in the detail of projects, does anyone know? Or do they just want to know, based on the special assessment and revenue projections, that we will be able to repay?

Thank you so much for your feedback! I am a committee member, not a Board member.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

You don't even know the costs yet so how do you know how much to borrow? Whatever you borrow needs to be known and then split amongst ALL the owners/members in the HOA once the special assessment is voted in. Seems you are all putting A LOT of carts before your horses...

Has the project been approved properly? Has the process to pass the special assessment begun? All of this takes more than just a majority vote of the board. It's going to take a majority of ALL members/owners. That majority still has to pay and money collected before going too gung-ho on amount of money borrowed.

Believe me, the process of having a special assessment at all is going to be a time consuming project alone. The bank will also be looking at other things like the number of liens/foreclosures the HOA is involved in. Rental versus Owner percentage. I would suggest finding a copy of the HUD form one has to fill out for FHA loans to get a grasp of what banks are looking for in the HOA.

Just because a project is wanted doesn't mean it needs to be done. Make sure it's what the community really wants. Plus understands that it's not just construction cost but long term maintenance as well. A building will require water, electricity, insurance, and general maintenance costs. So your dues may need to raise as well.

Former HOA President

GenoS (Florida)
Posts: 4,276

Posted:

That sounds like a really, really bad idea. To commit to financing before knowing substantially all the details and costs is insane.

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