Using a HELOC to pay an HOA special assessment

Large assessments for roofs, seismic work or reserves can run five figures. A HELOC is one way to pay.

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Lender questions

An unpaid assessment can become a lien and block a HELOC. Open the line before the due date. Condo owners: see HELOCs on condos.

Example

A condo association assesses each owner $25,000 for roof and balcony repairs, due in 90 days. The HOA offers a 5-year payment plan at 9%. A HELOC at 7.75% APR paid off over 5 years would cost about $504 a month, compared with about $519 on the HOA plan. The difference is small; the bigger question is whether you can open a line in time.

Opening a line during an assessment

Lenders may ask about pending assessments when you apply, especially on condos. Some see a large assessment as added risk to the building. Apply as soon as the assessment is announced, and give the lender the HOA's assessment letter.

Before you pay

• Read the HOA's notice and reserve study: is the work necessary and the cost supported by bids?
• Check your governing documents for vote requirements on large assessments. California generally requires a member vote for assessments over 5% of the budget, except for emergencies.
• Ask whether your HO-6 insurance policy's loss assessment coverage applies, if the assessment follows an insured event.

HELOCs on condos.

Checklist before paying

1. Get the HOA's written assessment notice, due dates and payment options.
2. Ask whether a payment plan is offered, and at what rate.
3. Check your HO-6 policy for loss assessment coverage.
4. Get a HELOC quote and compare the total cost with the HOA plan.
5. Pay by the due date to avoid late fees and a possible lien.

If several owners can't pay, the association may borrow instead and raise dues to repay the loan. Ask how the board plans to handle owners who fall behind; it affects everyone's costs.

Example

An owner pays a $12,000 assessment by HELOC and repays it over two years.

Also asked

Can the HOA put a lien on my home if I don't pay a special assessment?

Yes. Unpaid assessments can become a lien, and in many states the HOA can foreclose after following required steps. California limits HOA foreclosure for assessments under $1,800 or less than 12 months delinquent. Paying on time, with a HELOC if needed, avoids that risk.

Will an HOA special assessment show up when I apply for a HELOC?

Often. Lenders may ask the HOA for a questionnaire or estoppel letter, which lists pending assessments. Disclose it up front.

Can I deduct HELOC interest used for an HOA special assessment?

Possibly, if the assessment pays for capital improvements to the property, but rules for condos are nuanced. Routine repairs usually don't qualify. Ask a tax preparer with your HOA's description of the work.

Does an HOA special assessment lower my home's value?

Usually not over time, if the assessment fixes real problems. Buyers discount units in buildings with known defects and unfunded repairs, so paying for the work can protect value.

What if I can't afford an HOA special assessment or a HELOC?

Ask the HOA about a hardship payment plan. Some associations work with owners who can't pay a special assessment to avoid liens, and an association may borrow instead and raise dues.

Can I pay part of an HOA special assessment now and the rest later?

Sometimes. Some HOAs allow installment payments on a special assessment, such as a 5-year payment plan, so ask the board or management company before deciding how much to draw from a HELOC.

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