4 Funding Terms to Know When Buying a Condo or Home in a Community Association

Looking to purchase a condo or home in a community association or HOA?

Below are a four terms buyers need to be aware of related to association budgets, funding, and expenses.

1. Assessments

Association residents pay fees or dues to cover collective maintenance expenses such as landscaping, exercise room upkeep, parking lot lighting, and snow removal.

Assessments are typically collected on a monthly or annual basis and can change based on the needs of the community.

2. Reserves

A reserve fund is a savings account for large scale community association repair, restoration, or replacement concerns. Reserve funds can be used for emergencies such as unforeseen common area structural problems or clubhouse roof leaks.

Reserves can also be utilized for long-term capital improvement projects including replacing community sidewalks, installing new fencing, and façade repairs.

States have different legal requirements for reserve funds. For example, the Illinois Condominium Property Act requires any budgets adopted by an association board to provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements.

Reserve amounts can vary due to factors including the size of the community and the common element property components.

3. Special Assessments

Special assessments are monies, in addition to the regular monthly assessment, collected by a condominium, townhome, or homeowner’s association from its members.

Special assessments are utilized to pay for expenditures not included in the association’s annual budget.

An association’s use of funds collected through a special assessment is generally restricted to the specific project for which the special assessment was approved as well as any ancillary costs (ex. engineering fees, building permits, construction bonds).

When an association levies a special assessment, payments can occur in a single lump-sum or in multiple installments (ex. monthly installments payable over the course of several years).

4. Loans

Associations may find themselves in the position of having to pay for necessary (or even emergency) maintenance, repair, or replacement of common elements that go beyond the annual budget or available reserves.

One viable option may be for the association to utilize a loan that will effectively fund and complete the necessary projects.

Unlike personal loans (where an individual is liable) or commercial loans (secured by a mortgage on real estate), association loans are typically secured by a pledge of association assets (e.g., right to receive future income, bank accounts). Banks also grant associations loans in exchange for a lien on assessments.


If you’re buying or selling a home that’s part of a community association, click here to contact Circle Closings.

Our attorneys can walk you through the real estate closing process, pay attention to the details, and protect your interests during this important transaction.