The Condo Association's or HOA's special 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 or
HOA can make a partial prepayment during the Condo Association or
HOA
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 or HOA's loan. Units can be bought and sold
regardless of whether there is a Condo Association loan or HOA loan in
place.
The Condo Association loan or HOA loan does not become reported on a personal credit report.
Condo association loan length is negotiable and depends on the type of capital improvement project (landscaping, roofs, etc.).
Banks offer an HOA or 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 HOA or Condo Association
will be converted to an amortizing period causing principal and
interest payments. The Condo Association or HOA 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 or HOA knows they will use 100% of the
Condo Association loan or HOA 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. There are no prepayment penalties, it is fully amortizing, with no balloon payments.
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