Board members seeking a condo association loan need to understand the available terms and conditions for these loans. Assuming that a condo association meets the relevant underwriting criteria, the terms of the condo association loan need to be compared with self-funding and other options.
Provided that the condo association qualifies, typical terms and conditions include:
* Amount: Up to 100% of project costs
* Term/Amortization: Ranging from 5 years to 15 years to match the useful life of the capital improvement
* Rate: Based on Treasury Rate or other index (typically 5.00% to 6.00% rate)
* Closing costs: Minimum of $2,000 (including attorney fees); typically 1.25% of loan amount
As an example, assume that a condo association has 200 units and has a $500,000 capital improvement project (e.g., roof repairs, siding, common areas, etc...). Their choices would be to a) obtain a $500,000 condo association loan, b) levy a $500,000 special assessment, or c) forego the capital improvements.
Assuming that the $500,000 loan was made at 6.00% over 10 years, the monthly payment would be $4,750 or $237.50 per unit. The special assessment alternative would amount to $25,000 per unit.