Path to Financing - Overall Project Budget
Before talking to a lender about a loan to fund a repair project, the HOA should have a thorough, complete project budget prepared. In addition to the cost for construction, the budget should include: architect/engineering fees, permits, extra management expenses, legal fees, loan fees and any other expense related to the project.
There are several approaches to preparing a complete, project budget. For the construction expenses, it may be appropriate to either gather ROM pricing (rough order of magnitude) or competitive bid numbers based on a formal design package.
The architect/engineer will provide a fee structure for preparing design documents, providing construction management and contract administration, and overseeing the general contractor’s compliance with Washington state laws.
Sometimes the governing documents need to be amended in order to allow an Association to borrow money. An attorney will prepare a declaration amendment and guide the Association through the approval and recording process. Additional legal fees should be budgeted for things like contract reviews, loan document reviews, and general counsel related to approving a special assessment and loan.
Management companies must track special assessments, loan payments, and project payments in addition to the regular monthly services they already provide. Budgeting for extra meetings, mailings and other administrative tasks is important.
There are always loan fees and sometimes additional loan acquisition fees, recording fees, commitment fees, etc, depending on the lender. Understanding how banks define their fees, and when it makes sense to work with a consultant to save money on loan fees is important.
The complete project budget will become the basis for the loan amount, so it’s critical to cover all the line items which should be included. And don’t forget to budget for sales tax!