Perhaps the idea of home ownership sounds appealing, but the thought of all the maintenance involved — inside and out — doesn’t sound so great. 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 3-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 (like a pool), and create guidelines (and enforce them) for the community of homeowners.
That said, interacting with an HOA and following their guidelines may not be for everyone. Read on to learn:
• What is an HOA, or homeowners association
• How do HOAs work
• How much are HOA dues
• What are the pros and cons of HOAs
• How will HOA fees impact your costs as a homeowner
What Is an HOA (Homeowners Association)?
If you’re wondering what a homeowners association is, let’s start with a definition: An HOA is typically a non-profit volunteer group that manages aspects of homeownership in certain planned unit developments (PUDs), 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 of shared spaces, such as lounges and pool areas
• Garbage pickup
• Parking
• Security
Another answer to “What is an HOA?” should mention that these associations typically make enforceable rules about the look and feel of the community. There may be guidelines about, say, the size of pets one may own, or the color schemes permissible for a townhome’s exterior.
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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 be required to file annual reports with the corporation commission, in order 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 must keep properties maintained according to stated specifications. In a planned unit subdivision of single-family homes, for example, rules may include what types of landscaping are permitted, or exterior colors of paint, what kinds of fencing is allowed, and more.
They can include usage rules for common property, such as a pool, and typically outline penalties for rule violations, ranging from forcing a homeowner to comply to fees and, sometimes, 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 80 million Americans live in HOAs, cooperatives, or condominium units.
• 53% of all U.S. homeowners live in HOA communities.
• 40 million housing units in America are part of HOA communities.
As you see, HOAs are quite popular.
What Is an HOA Fee?
Now that you know a bit about what is a homeowners association, let’s look at those fees they charge. People who buy property in an HOA-governed condo or community usually must pay dues — also known as HOA fees — typically due monthly. These fees help to 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 could be used for landscaping expenses, and so forth. Additional special assessments may be charged for major repairs, such as roof repairs.
Some studies suggest that average HOA fees range from $200 to $400 per month, although they can be as low as $50 and as high as $2,500 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.
What’s most important when shopping for a new home is that you are clear about what fees would be assessed on your individual unit and whether that fits your budget.
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When Considering an HOA Property
When considering whether or not to buy a property within a homeowners association, it makes sense to understand what you’d be committing to if you bought this property.
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 also be able to help. This may give you a good overview of any challenges the organization is facing, and insights into how solutions are brainstormed and implemented.
Questions to investigate can include:
• What are the HOA fees each month? What do they cover?
• If the fees seem low, does it appear as though enough funds are collected to maintain general areas? What about meeting rooms, the gym, 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, what are they?
• How many units are not paying their HOA fees? What are the consequences for that? Are these penalties being imposed?
• If certain units don’t pay their HOA fees, can these unpaid costs be imposed upon other owners to make up the difference?
• If desired, will you be allowed to sublet your unit, short term?
• 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, of what type? Does it involve, say, 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 can be valuable in regards to what questions to ask and issues to explore before buying.
You can also review the bylaws, which usually share voting rights of members, budget and assessment rules, meeting requirements, and so forth. 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.
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Pros vs Cons of HOAs
There are several benefits of buying a property that’s part of an HOA. Consider these upsides:
• 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. These can include:
• The cost of the HOAs fees can be prohibitively expensive, and the possibility of assessments can be financially challenging.
• Potentially restrictive guidelines that inhibit your freedom over your property (that is, you may not be allowed to have a certain kind of pet or put in solar panels).
• Those who run the HOA may be volunteers 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.
There are also property taxes, insurance, 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 expenses other than closing costs such as moving expenses, furniture costs, and more 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 unanticipated housing repairs, or medical expenses, or something else entirely.
To help you figure out that affordable house payment number, you could check out our mortgage calculator.
How much needs to be borrowed also depends upon how much of a down payment is required for the loan program of your choice. Traditionally, a down payment was considered to be 20% of the purchase price, but according to the National Association of Realtors, most first-time homebuyers put down 7% in 2021, and the figure was 17% for repeat homebuyers.
In general, it can be wise to put down as much as you can comfortably afford. The simple reason is that the more you put down, the less you’ll borrow — which in turn creates lower monthly payments (allowing you to “afford” more house) and provides greater equity in the home (subject to market fluctuations). Plus, with a lower mortgage amount, you’ll owe less interest over the loan’s life.
Note that different lenders require different amounts for a down payment. The down payment amount can vary depending upon the loan program and other factors.
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What to Know About Mortgages and HOAs
There’s one more wrinkle to the topic of what is a homeowners association and should you buy into one: the impact it may have on securing your mortgage.
When you buy into an HOA, you may need additional documentation for your lender. If your bid is accepted, the lender will likely request a homeowners association certification, called HOA cert for short. This document provides your lender with a snapshot of how the HOA is being run, and may provide information such as:
• 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 occupied 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 loan program to loan program, it makes sense to check with your lender of choice as soon as possible to determine if this financial institution considers your condo to be eligible for financing.
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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SoFi Mortgages
Buying a home or condo can be stressful. But at SoFi, we’re doing our part to make the online mortgage application process as easy and affordable as possible. You can make your dream purchase a reality with competitive rates and as little as 3% down for qualifying first-time homebuyers and loans of up to $3 million. Plus, you won’t have to pay any prepayment penalties.
Our Mortgage Loan Officers can guide you through the buying process, helping you have a smooth and simple home purchase.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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