Perhaps the idea of home ownership sounds appealing, but the thought of all the maintenance involved—inside and out—doesn’t sound so great. If that resonates, buying something with an HOA, such as a condominium or a home in a planned housing development may be a solution, providing relative ease of maintenance, desired amenities and security, and so forth.
If you’re thinking about buying a property for the first time, new-sounding terms will likely be bandied about, such as homeowners associations and HOA certs. You may also hear those same terms if you’re looking into buying a home in certain housing subdivisions or other planned communities because, in each case—buying a condo, or a home in a planned unit development (PUD)—you’re probably going to be required to join the homeowners association if one is associated with the property.
This post will provide some answers to frequently asked questions about homeowners associations, tailored for people new to this experience—including a definition, association fees, rules, and so forth. Another key aspect explored: what homeowner-association information will need to be provided to a mortgage lender.
What is a Homeowners Association?
The homeowners association (HOA) itself is an organization that enforces these rules for owners of properties in a condominium, planned community, or subdivision. HOAs 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.
What is an HOA Fee?
People who buy property in a 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 $200-300 per month, although they can be as low as $50 and as high as $3,000 or more. It depends on the HOA complex, what amenities the project maintains and sometimes on how the individual HOA is managed.
What’s most important is being clear about what fees would be assessed on your individual unit, and whether that fits your budget.
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. Even if the friend or family member owns housing under a different HOA, 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.
Working With a Lender
While shopping for a new home or condo, one key consideration is how much you can afford—with the true cost being more than just principal, interest, property taxes and homeowners insurance and special assessments such as HOA.
There are also property taxes, insurance, closing costs (which can run from 2% 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 a report from U.S. Mortgage Insurers (USMI) indicates that it could take up to 36 years for someone with an average income to save a 20% down payment.
In general, here’s what makes sense. Put down as much as you can comfortably afford because, 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.
Here are other things to consider when working with a lender to purchase a home with an HOA. When you make an offer to buy a piece of property (condo or home), and it’s 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
• and more
If this information is requested, it will likely be reviewed to confirm that this condo project 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.
At SoFi, buying a home or condo doesn’t have to be stressful. You can make your dream purchase a reality with competitive rates with as little at 10% down for purchase loans up to $3 million, without paying any hidden fees or prepayment penalties.
You can receive exclusive member rate discounts on additional SoFi loans, and our mortgage loan officers can guide you through the condo-buying process. Plus, there are financial advisors standing by to answer other questions.
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