hoa-financial-reporting-faq

Can an HOA have debt or loans?

Discover if an HOA can incur debt or loans and what it means for your community budget and management.

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Reviewed by:

D. Goren

Head of Content

Updated Jan, 12

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Can an HOA have debt or loans?

 

Can an HOA Have Debt or Loans?

 

Yes. A U.S. HOA can legally take on debt or loans, and this is very common. An HOA is a legal entity, similar in some ways to a small non‑profit corporation, and it can borrow money if its governing documents allow it. The documents usually include the CC&Rs (rules for the community), bylaws (how the HOA operates), and sometimes state statutes.

 

When an HOA Is Allowed to Borrow

 

An HOA may borrow if:

  • The bylaws or CC&Rs allow loans: Some require a vote of the homeowners. Others give the board authority on its own.
  • The purpose is community-related: Examples include major repairs, replacing roofs, emergency fixes, or funding long‑term projects.

If a vote is required, the documents usually specify what percentage of owners must approve. Common thresholds are 51%, 67%, or 75%.

 

How HOAs Use Loans

 

  • Large repairs: When reserves (savings for future repairs) are too low.
  • Avoiding huge special assessments: A special assessment means charging owners an extra fee. Borrowing can spread costs over time instead.
  • Emergency expenses: Storm damage, structural issues, or safety problems.

 

How HOA Debt Affects Homeowners

 

  • Higher monthly dues: Loan payments come from assessments, so dues may rise.
  • Possible special assessment: Some boards pair a loan with a one‑time charge to owners.
  • Lender requirements: The bank may require the HOA to keep a certain level of reserves or maintain stricter budgeting.

 

What an HOA Cannot Do

 

  • Borrow secretly: States require proper notice of board meetings, and major financial decisions must be discussed openly.
  • Use loans for non-HOA purposes: Money must benefit the community, not individual board members.

In short, HOAs can have debt, but the exact process and limits depend on the community’s governing documents and state law. Homeowners always have the right to see financial records and ask how a loan will affect dues and long‑term planning.

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