Perhaps the idea of homeownership sounds appealing, but the thought of all the maintenance involved — inside and outside — not so much. Dealing with snow removal or tending to your lawn might be the last thing you want to add to your already full plate.
If that resonates, buying a home that has a homeowners association, or HOA, might be the right move. Whether you’re shopping for a condo or a three-bedroom house in a new development, an HOA could be a valuable thing. These organizations, funded by dues, take care of many of those maintenance responsibilities, run shared facilities (such as a pool), and create guidelines (and enforce them) for the community of homeowners.
That said, interacting with an HOA and following its guidelines may not be for everyone. Read on to learn:
• What is an HOA
• How do HOAs work
• How much are HOA dues
• What are the pros and cons of HOAs
• How HOA fees impact your costs as a homeowner
Table of Contents
- Key Points
- • An HOA oversees common areas, maintenance, and improvements in planned housing developments.
- • The HOA assesses the regular fees of each homeowner to cover the costs of upkeep and other services.
- • Special assessments may be levied for capital improvements or major repairs to the buildings or grounds.
- • Buying a property that is part of an HOA can affect the mortgage application and underwriting process.
- • HOAs can have specific rules about your property’s appearance and usage, including rules about pets and landscaping.
What Is an HOA (Homeowners Association)?
An HOA is typically a nonprofit volunteer group that manages aspects of homeownership in certain planned unit developments, condos, and other housing communities. The HOA collects fees from each member of the community and uses them to handle maintenance duties and amenities. These may include:
• Landscaping and maintenance of walkways and the like
• Pest control
• Maintenance and utilities for shared spaces, such as lounges and pool areas
• Garbage pickup
• Parking
• Security
Another answer to “What is an HOA?” is that these associations typically enforce rules about the look and feel of the community. There may be guidelines about the size of pets community members are allowed to own or the color schemes permissible for a townhome’s exterior. The existence of an HOA is an important consideration when you’re shopping for a place to live, and HOA fees need to be built into a homebuyer’s financial plan, just like home loan payments.
Recommended: Condo vs Townhouse: 9 Major Differences
How Does an HOA Work?
HOAs can be staffed in different ways. They can be run by people owning property within its boundaries, run by a board of directors, or through a similar arrangement, with board designees elected to oversee and enforce HOA rules.
Many HOAs are incorporated, which makes them subject to the laws of the state and may require them to file annual reports with the corporation commission to remain in good standing.
People who purchase properties within an HOA jurisdiction become members of that organization, and they must abide by the rules contained within that organization’s bylaws and Declaration of Covenants, Conditions, and Restrictions (CC&Rs).
HOA rules, fees, and restrictions vary. Some bylaws and CC&Rs are strict, while others are looser, typically focusing on how residents should maintain properties according to the stated specifications. In a planned unit subdivision of single-family homes, for example, rules may include the types of landscaping that are permitted, exterior paint colors that can be used, and the kinds of fencing designs that are allowed.
They can include the rules of using common property, such as a pool, and typically outline penalties for rule violations, ranging from forcing a homeowner to comply with fees to potential litigation.
How Common Are HOAs?
Here are some recent statistics that will help you get an idea of how common HOAs currently are in the U.S.:
• Approximately 76.5 million Americans live in HOAs, cooperatives, or condominium units.
• 53% of all U.S. homeowners live in HOA communities.
• 28.2 million housing units in America are part of HOA communities.
As you can see, HOAs are quite popular.
What Is an HOA Fee?
Now that you know a bit about what an HOA is, let’s look at the fees they charge. People who buy property in an HOA-governed condo or community usually must pay HOA fees — typically on a monthly basis. These fees help maintain common areas of buildings, such as lobbies and patios, and perhaps community clubhouses. These fees can cover maintenance on elevators or swimming pools, if applicable, or they could be used for landscaping expenses, for example. Additional special assessments may be charged for major repairs, such as roof replacement.
Some studies suggest that average HOA fees range from $200 to $300 per month, although they can be as low as $100 and as high as $1,000 or more. It depends on the HOA complex, where it is, what amenities the project maintains, and sometimes on how the individual HOA is managed.
The most important thing when shopping for a new home is knowing what fees will be assessed on your individual unit and whether that fits your budget.
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Considering an HOA Property
When considering whether or not to buy a property within an HOA, it makes sense to evaluate what you’d be committing to.
To get an understanding of how the organization operates, you can ask the board of directors if you could read minutes from meetings — if you have a real estate agent, they should be able to help you access records. This may give you a good overview of any challenges the organization is facing and insights into how solutions are brainstormed and implemented.
Things to look into can include:
• What are the HOA fees each month? What do they cover?
• If the fees seem low, are enough funds collected to maintain general areas? What about meeting rooms, the gym, the pool area, and so forth?
• If the HOA fees are higher than expected, do they seem excessive for what you’d get in return?
• Are homeowners also being charged special assessments to cover other costs? If so, how often, and what are they?
• How many units are not paying their HOA fees? What are the consequences for that? Are penalties being imposed?
• If certain units don’t pay their HOA fees, how does this affect other homeowners?
• Would you be allowed to sublet your unit? Over what term and with what restrictions?
• Are you allowed to have a pet? If so, what restrictions exist? Ask to read a copy of the CC&Rs, which is recorded public information.
• Does pending litigation exist against the HOA? If so, what type? Does it involve damage to one unit, or does it affect the entire organization?
If you have friends or family members who are part of this HOA, consider asking them what they like about living there and what they don’t. If you have a friend or family member who owns housing under a different HOA, chat with them as well. Their insights into what questions to ask and issues to explore before buying can be valuable.
You can also review the bylaws, which usually state the voting rights of members, budget and assessment rules, meeting requirements, and other details. Check to see what actions can be taken without a member vote — if they include raising assessments or creating rules, this could have an impact on your buying decision.
Pros vs Cons of HOAs
There are several benefits of buying a property that’s part of an HOA
• Guidelines to help maintain the look of the community, settle issues, and create harmony among residents
• Enhanced quality of life and property values
• Maintenance services so homeowners don’t need to do the work themselves or hire freelance help
That said, there are also possible drawbacks to being part of an HOA.
• HOA fees that can be prohibitively expensive, and the possibility of special assessments being financially challenging
• Potentially restrictive guidelines that inhibit your freedom over your property (such as not being allowed to have a certain kind of pet or install solar panels)
• Volunteers running the HOA vs. skilled real estate professionals, which could lead to inefficiencies
Can You Afford to Buy Into an HOA?
When shopping for a new home or condo, one key consideration is how much you can afford for a house — with the true cost being more than just principal, interest, and homeowners insurance. If you are considering properties that have HOA charges, it’s vital to factor those in to make sure your budget is manageable.
You’ll need a down payment on the home. There are also property taxes, insurance, and closing costs (which can run from 3% to 5% of the home’s cost, paid by the buyer and/or seller according to the contract). And there are expenses other than closing costs, such as moving expenses and furniture, that should be considered as you grapple with how much you can afford.
Plus, you might want to have an emergency fund established for unexpected expenses, whether that’s unanticipated housing repairs, medical expenses, or something else entirely.
To help you figure out that affordable house payment number, check out our mortgage calculator.
What to Know About Mortgages and HOAs
There’s one more factor to consider when thinking about whether to buy into an HOA: the impact it may have on securing your mortgage.
When you buy a property that is part of an HOA, you may need additional documentation for your lender. If your bid is accepted, the lender will likely request an HOA certification (an HOA cert for short). This document provides your lender with a snapshot of how the HOA is being run and may include information about:
• How old the project is
• Whether a condominium development was converted from an apartment building or specifically built as condo units
• How many units exist in the project
• How many units are occupied
• How many units are owner-occupied, and how many are rented to someone else
• How much HOA fees are
• The amount of insurance on the project
If this information is requested, it will likely be reviewed to confirm that this property meets the lender’s loan eligibility guidelines. Because guidelines can vary from lender to lender and between loan programs, it makes sense to check with your chosen lender as soon as possible.
The HOA cert may also be obtained by the escrow/title company and provided to your lender, along with the relevant CC&Rs. This provides insight into any property restrictions and other aspects that may affect a home’s lendability and marketability.
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The Takeaway
Homeowners Associations (HOAs) are organizations that manage common areas, maintenance, and enforce community rules within planned developments and condos. As a homebuyer, you must factor the required monthly HOA fees and potential special assessments into your budget, as these costs and the association’s financial status can impact your mortgage application. It’s important to weigh the benefits of common area upkeep against the potential drawbacks of restrictive guidelines and the financial commitment before you purchase a property in an HOA.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Why do HOAs exist?
Homeowners associations exist to manage and maintain common areas, enforce community rules, and collect and manage the finances used for community upkeep. Many people who participate in HOAs expect the association to help enhance their property values.
How much are HOA fees?
HOA fees vary widely based on the amenities offered by the development. In general, most people can expect to pay at least $200 to $300 per month.
Can an HOA affect my mortgage application?
Your lender will likely request documentation about the HOA from the association to learn details of the building, how it’s insured, and the financial status of the HOA. It’s also important to factor HOA fees into your monthly housing budget.
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