CONDOMINIUM LOANS

How does a Condo Association or HOA loan affect the unit owners?

            The Condo Association's monthly assessment income may need to be increased by some amount in order to support the loan payment. But because there are no prepayment penalties, the Condo Association can make a partial prepayment during the Condo Association Loan term, making it possible to reset the monthly payment on an annual basis, lowering the assessment level required.

            The unit owner is not directly obligated for the Condo association's loan. Units can be bought and sold regardless of whether there is a Condo Association loan in place.

            The Condo Association does not become reported on a personal credit report.

How is a Condo Association loan normally structured?

            Condo association loan length is negotiable and depends on the type of capital improvement project (landscaping, roofs, etc.).

            Banks offer a Condo Association a line of credit available to draw on to pay for repairs and improvements. When the project is completed, the obligation converts to an amortizing period causing principal and interest payments. HOA credit line periods are typically three months to two years, depending on the project build out period. The Condo Association will provide invoices to receive advances from the credit line. Only the funds used by the Condo Association will be converted to an amortizing period causing principal and interest payments. The Condo Association does not pay for funds which they have not used.

            Amortizing periods are typically not longer than ten years. Longer amortization periods may be possible under certain circumstances.

            If the Condo Association knows they will use 100% of the Condo Association loan proceeds, a standard amortizing loan may be suggested to save the borrower interest expense during a line period. In this case, the HOA funds are put into a temporary deposit account, which may earn interest, and funds are released as invoices are presented.

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