Article Courtesy of Bankrate
By Rachel Witkowski
Published January 7, 2018
Millions of homeowners live in communities that are part of a
homeowners association, or HOA. That means they pay fees to a group that keeps
up their community and parts of their home.
These mandatory costs can typically range from $25 to hundreds of dollars a
month and can sometimes include an additional annual assessment, depending on
the property and the amenities offered.
But HOAs can be a blessing a curse. They may offer great benefits, like a pool
or golf course, but also come with restrictions in terms of what you can do with
your home and who lives there.
Those benefits and restrictions are vastly different with each community
association. In 2016, there were 342,000 community associations with 69 million
homeowners nationwide, according to the Community Associations Institute, making
it more important than ever to know exactly what you’re paying for when shopping
for a home that’s a part of an HOA.
Start with the home seller
When looking at a home to purchase, the seller can probably get you information
on their HOA the fastest. While most lenders will eventually require you to
obtain that information anyway when getting a mortgage, you can be proactive in
talking to the seller first.
The seller can tell you how the HOA communicates with its homeowners. Some
groups are more active on social media or over email and offer weekly or monthly
updates to the homeowners, but others may barely communicate.
Know before you owe
It’s critically important to know beforehand all of the fees you would pay when
purchasing a home that’s part of an HOA. Many lenders will also consider your
HOA dues when determining whether you have the ability to repay a mortgage, so
such fees could be the difference between approval or disqualification for the
Fees will vary with each community and they’re often based on the type of
property, location, community, and amenities.
Know what you’re paying for
Each HOA has different amenities that your fees pay for. Do some comparison
shopping with different HOAs to get a better idea of the costs and amenities in
the areas you’re interested in living.
Some HOAs “have a fee of $25 a year because they upkeep the sidewalks, while
others might charge $250 a month because it’s a luxury building with pools and a
golf course,” says Dawn Bauman, senior vice president of government and public
affairs at the Community Associations Institute. “It really depends on your
financial threshold,” she says, and the amenities you are willing to pay for.
Additionally, you may be charged an assessment, an additional fee that you might
have to pay to help the HOA cover the cost of a building repair or new project.
Know the association’s financials
Ask for the financials of the association and whether there are any projects
they might be working on. Sometimes HOAs will charge an additional assessment to
pay for a building repair or construction of a project like a clubhouse.
It’s important to ask the HOA if they have a “reserve fund” for projects and
whether they have a “reserve plan” which is a separate study on potential future
projects. If the HOA does not have a reserve but has plans for future projects,
that means you might have to pay more down the road. You can also ask the seller
how often the fees have increased in the past to get an idea of how frequently
there are cost increases.
“Predictability is the hardest thing to pin down, but you want to make sure you
do the research to make sure you can afford not just the fees now, but any
potential increase or assessments,” says Joseph Pigg, senior vice president of
mortgage finance at the American Bankers Association.
Also, you should find out if the HOA owes any debt, because that means the
homeowners will be helping to pay it off.
“The debt part is the most important, to make sure you’re not going to be hit
with surprise assessments,” says Pigg.
If the HOA is subject to any pending litigation, that could mean other potential
costs for you, and may even suggest a problem with the structure of the building
if the lawsuit is tied to construction.
Know the HOA restrictions
One of the most difficult parts of being a part of an HOA can be the
restrictions tied to living in that community. Such restrictions can include
pets, the age of the residents, whether you can rent out your home, and how to
remove trash. Some HOAs charge penalties for violations and others can even
seize the property if a homeowner is not paying dues.
“You need to have a clear understanding of the covenants and restrictions” that
are typically “in the governing documents of the association,” says Bauman. “The
seller who is an owner in that association always has the ability to obtain that