What Is An HOA?

HOA simply stands for “homeowners association.” These are private organizations that oversee and manage certain types of residential communities. This most often includes neighborhood subdivisions, planned communities, or condominium buildings. Some states consider condominium associations distinct from HOAs.

The goal of a homeowners association is to preserve the common interests of the residents who live there. They also focus on preserving property values within that neighborhood or living space.

To that end, a board of directors governs HOAs and sets and manages the rules of the community. Members typically pay monthly or annual fees to be a part of the homeowners association. In addition, there can also be fines for violations of existing regulations.

The Declaration of Covenants, Conditions, and Restrictions spells out these rules, which can include things like:

• Guidelines on choosing paint colors for fences and external buildings
• Restrictions on external buildings such as sheds or dwelling units
• Rules regarding lawn ornaments and political signage
• Regulations surrounding noise level and quiet hours
• Restrictions on the type or size of your pets
• Rules for the use of common areas and amenities

Homeowners Association vs. Neighborhood Association

Keep in mind that an HOA differs greatly from a “neighborhood association.”

Neighborhood associations are typically voluntary associations between neighbors for a common purpose. HOAs, on the other hand, are often mandatory when living within a particular residential area or community.

What Are HOA Fees?

HOA fees are monthly or annual fees that you’ll pay directly to the board or management company. They can range from a few hundred dollars per month, though some luxury neighborhoods can impose fees in the thousands. They can also impose special assessments on homeowners to cover the cost of immediate needs if the HOA reserve fund is low.

What Do HOA Fees Include?

What do homeownership association fees cover? The answer varies depending on the nature of the community and how the HOA board members allocate the money. Generally, these HOA dues cover the cost of things such as:

• Maintenance of amenities and common areas (pools, tennis courts, playgrounds)
• Utilities for common areas (water, electricity, etc.)
• Insurance for amenities and common areas
• Trash pickup and recycling
• Landscaping
• Security
• Pest control
• A reserve fund for future maintenance or improvements

Some condominium associations can also use these fees to cover maintenance and repair for the actual buildings. However, this is not something you’d see in an HOA for residential developments.

How Does an HOA Work?

An HOA enforces rules for property owners who live in the community. When you buy a home within the neighborhood, you’ll pay fees and be subject to the rules and regulations of the HOA. Most are incorporated, meaning they must conform to established state laws.

Are you required to join an HOA to live in that community? Generally, yes, which means you’ll want to learn as much as you can about fees and governance before committing.

HOA Board

A board of directors oversees HOAs. These directors are also residents of the community and may even draw a small salary for their service. One common misunderstanding is that board members do not pay fees. However, board members are not exempt from any of the rules imposed on other residents of the community.

HOA Management

Board members are in charge of the rules laid out in a document called the Declaration of Covenants, Conditions, and Restrictions (CC&Rs). These documents establish clear guidelines for the members of the HOA, including the way they maintain their property. The CC&R will also specify any penalties for violating the rules, such as fines or fees. This document may also have legal force, allowing board members to pursue litigation for non-compliance.

HOA Fees and Your Mortgage

Homeowners association fees are separate from mortgage payments but can affect your eligibility for a mortgage.

Impact on Eligibility

When you apply for a home loan, lenders take your debt-to-income (DTI) ratio into account. Your DTI includes all of your monthly debts divided by your monthly income.

Generally, lenders are looking for a DTI no higher than 43%. And when you apply for a home in an HOA, lenders will add these fees to your DTI calculation. High fees can potentially jeopardize your ability to qualify for a loan.

Impact on Monthly Costs

While HOA fees are separate from your mortgage payments, they still add to your monthly costs. As you probably know, failing to make your mortgage payments can result in a lien or foreclosure against your home.

Failing to make HOA payments can also be a violation of your mortgage. The board can pursue litigation for failing to comply with the Declaration of Covenants, Conditions, and Restrictions.

Additionally, HOA fee hikes and periodic assessments add a layer of uncertainty to your monthly living costs.

Impact on Closing Costs

Your HOA may require you to pay for a few months (or even a year) of fees upfront. That can be a tall order, especially since you’ll already be responsible for paying the closing costs on your new house.

For instance, if your fees are $400 per month, a year’s worth of fees could add $4,800 to your move-in bill. That may even affect your purchase budget since it will add to the total number of fees to pay before you can move in.

Pros and Cons of an HOA

Now that you know more about how an HOA works, should you commit to buying a home in one of these communities? You might want to consider the pros and cons. This decision will impact your day-to-day living for as long as you own your home.

Pros

Many homeowners discover that they love the support and amenities that come from an HOA. Positively, they offer:

• Access to shared amenities (pools, playgrounds, fitness centers, etc.)
• Civic services such as trash collection, security, and pest control
• Consistency in the standard of landscaping and community aesthetics
• Preservation of property values in your community
• Stronger community support and connections between neighbors

Your experience may vary, but if you want a community with a pool and fitness center, an HOA can be a good option.

Cons

On the flip side, homeowners associations can bring significant drawbacks, such as:

• High fees, including high fees due at purchase
• Unpredictable fees, which may climb over time
• Restrictions on how you use or decorate your property
• Fines for violating the terms of the agreement
• Potential for disputes between residents and board members

Learning more about the HOA before committing can be helpful. Find out how often the fees have increased or if the board regularly assesses to replenish the reserve fund.

Review the Declaration of Covenants, Conditions, and Restrictions carefully to make sure you can comply with community standards.

Make a Well-Informed Decision

HOAs have their benefits as long as you can navigate the complexities of HOA fees, terms, and conditions. It helps to have the right guide. Getting assistance from a real estate professional can empower you to make well-informed decisions about your next home purchase.

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