HOAs: What You Need to Know About Homeowners Associations

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

Chances are you’ve encountered a homeowners association (HOA) on your homebuying journey. Homeowners association and community association memberships are becoming more common for residential homes. According to research from iProperty Management, approximately 58% of homeowners now live in an HOA community.

Yes, an HOA requires you to pay monthly dues, but living in a community with an HOA also comes with its share of perks.

Here’s what you can expect if your new home is part of an HOA:

What is a homeowners association?
Are HOA fees expensive?
Advantages of homeowners associations
Disadvantages of homeowners associations
What to know before you buy a property with an HOA?

What is a homeowners association?

An HOA is an organization with rules and guidelines that govern the appearance of properties in a development.

Residents pay mandatory membership fees and, in turn, receive amenities, such as shared common areas, landscaping, and snow removal.

Community members self-manage as many as 40% of HOAs with a private board you can volunteer to serve on. However, most communities hire professional managers to handle the daily tasks.

The following home types may require HOA membership:

Single-family homes
Condominiums
Townhomes
Homes in planned communities

Whether you’re researching mortgage rates or looking to buy a home, Credible is here to help. You can effortlessly compare prequalified rates from our partner lenders in just a few minutes.

Credible makes getting a mortgage easy

Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

Trustpilot

Are HOA fees expensive?

Monthly HOA fees can vary widely by the community and your location. On average, you can expect to pay between $170 and $700 a month in HOA fees.

While single-family homes are typically more expensive condos, condo communities are more likely to have higher HOA fees. This is due to condo communities often having more shared amenities and services to pay for.

Advantages of homeowners associations

While you might be put off by the recurring fees, there are several potential benefits of joining an HOA that you should consider:

Maintains high property values in the community: Homes with excellent homeowners associations may have higher values than competing properties. Potential buyers might appreciate the uniform policies and additional amenities offered by one HOA over another.
Aesthetically pleasing neighborhood: Each home must abide by similar rules and guidelines for property upkeep. As a result, you’re more likely to have a neighbor with an attractive outdoor space and quiet nightlife.
Shared amenities: You may have access to shared common areas including swimming pools, playgrounds, and gyms. Some of the amenities may be too expensive to afford by yourself.
Potential shared services: Your dues may also pay for shared services such as lawn care, security, trash removal, and snow removal.
Sense of community: Your HOA may host periodic social events like neighborhood block parties and seasonal activities, allowing you to enjoy the company of your neighbors.

Disadvantages of homeowners associations

Sometimes, belonging to an HOA is frustrating and not worth the cost. Here are a few potential drawbacks to living in an HOA community:

Fees: HOA costs can be a steep monthly expense in addition to your mortgage payment and utility bill. The organization may also increase the annual fees if management costs increase. And there’s always a chance you’ll have to pay a one-time special assessment for unexpected repairs and improvements.
Reduced homebuying power: High HOA fees increase the cost to buy a home. You may need to settle for a more affordable alternative that sacrifices house features or community amenities.
Community rules: The HOA guidelines might prohibit certain remodeling plans and capital improvements to avoid rule violations. For example, you may need HOA board approval to add an addition to your home or install a children’s play area. You may also have to keep your house exterior a specific color to maintain a uniform appearance.
Contractual obligations: You must pay the annual HOA fees and additional one-time community costs. If not, the association has the right to place a lien on your home title until you pay the mandatory charges plus any add-on legal fees. In some locations, an HOA can foreclose on delinquent homeowners.
Potential mismanagement: An inexperienced leadership team may not make the best decisions for the community. As a result, the HOA might have budget problems or the board members may neglect necessary maintenance or fail to enforce the community guidelines.

What to know before you buy a property with an HOA?

Speaking with current residents is one of the best ways to evaluate an HOA. These are some questions you can ask to residents of an HOA community if you have your sights set on a property there.

What do my HOA fees include?

Your community association fees can cover these expenses:

Maintenance and repair costs for common areas
Insurance for common areas
Professional management fees
Snow removal
Trash pickup
Cash reserves for future costs

Low HOA fees may indicate the board of directors provides fewer services or more lenient community rules.

However, relatively high fees for your city don’t automatically guarantee you receive more amenities or a better quality of service. Therefore, it’s important to investigate the association’s reputation to make sure they wisely use your money.

Check Out: How to Buy a House as an Unmarried Couple

What are the HOA covenants, conditions, and restrictions (CC&R)?

Each HOA has a unique set of covenants, conditions, and restrictions. These are the HOA’s rules every resident must adhere to, and you can ask your real estate agent for a copy of them before purchasing the home.

Your community’s CC&Rs will typically include rules on:

Exterior paint color
Landscaping and property appearance
Acceptable window treatments, fencing, and roof shingles
Limits on the number of vehicles that can park on the street
Acceptable types of pets and animals
Noise and public gathering restrictions

These guidelines regulate how you can use your property as a first or second home as well. For example, you may be unable to use it as a short-term rental for the weeks you’re gone. You’ll want to make sure the CC&Rs are not too rigid for your lifestyle.

How many resident disputes have there been against the HOA?

An HOA embroiled in legal trouble is a big red flag. You’ll want to confirm with the residents that the HOA hasn’t had any recent disputes. Homeowners can sue their HOA for several reasons:

Breach of contract: This is when the management team doesn’t perform their necessary duties as the common documents require.
Breach of fiduciary duty: Another reason you might sue your HOA is for the mismanagement of funds and potential fraud.
Excessive fees and restrictions: You may sue if an HOA charges exorbitant fees for homeowner violations or is too restricting with its interpretation of the CC&Rs.
Discrimination: Associations must observe federal and state anti-discrimination laws. The federal Fair Housing Act prohibits real estate companies from making housing unaffordable due to several factors, including race, religion, sex, or disability.

As a potential homebuyer, you can ask the HOA board president for any recent or pending lawsuits. Your attorney can assist you with this task.

Tip: Try finding out if the HOA board or management company strictly enforces fines and penalties for rule violations too. If not, you might experience future hardship when you lodge a resident-to-resident dispute.

Find Out: Are Condos a Good Investment? Figuring Out the Pros and Cons

What kind of financial condition is the HOA in?

Low HOA cash reserves can require a series of fee hikes to replenish the savings balance and prevent special assessments.

To avoid buying into an HOA community with a dire reserve fund, take these steps:

Ask how many times the association has raised the membership fees. If so, how frequently and by how much?
Find out if the board meetings indicate they may need to increase fees after you move in. You may have a legal right to view the financial reports for potential fraud and overall financial health.

If you’re already a part of an HOA community, you and your neighbors may need to request an annual HOA audit if the current community rules don’t require one.

How often has the HOA required special assessments?

There are times when an HOA or condo association may legally require residents to pay a one-time special assessment to raise funds for unexpected repairs quickly.

In most cases, HOAs use the funds to:

Repave a parking lot
Replace a shared roof
Replace exterior siding for shared buildings
Add a swimming pool or tennis court

The governing documents may allow an HOA to collect these additional payments monthly, quarterly, or annually.

Buyer beware: While even financially responsible associations with healthy cash reserves may resort to a special assessment, a series of recent assessments can be a red flag for future financial emergencies due to poor preparation or aging infrastructure.

Read More: Should I Rent or Buy? How to Make the Best Choice

Does the HOA have any upcoming projects planned?

Ask residents if the HOA is planning an expensive project as this could indicate a special assessment might be coming soon.

If the HOA or residents’ feedback doesn’t mention upcoming projects or repairs, spend a few minutes inspecting the community. Older shared amenities or minimally maintained common areas can also signal a special assessment is in the near future.

These improvements may increase your home value. However, you must decide if the expense and neighborhood benefits are worth the additional monetary cost.

About the author Josh Patoka

Josh Patoka is a personal finance authority and a contributor to Credible. His work has been published on Fox Business and several award-winning personal finance blogs including Well Kept Wallet, Wallet Hacks, and Frugal Rules.

Home » All » Mortgages » HOAs: What You Need to Know About Homeowners Associations

Original Article