While HOA payments can add a large amount to your housing expenses, you may not realize this when you figure out how much your monthly mortgage payments will be. Before you commit to buying a property that’s part of an HOA, get to know where your money goes and what to expect with your HOA dues.
HOA Overview
An HOA is a group of homeowners in the same neighborhood or building who share costs, set rules, and manage common areas together. For example, everybody who owns a condo in the same building is typically part of the same HOA. The HOA makes decisions about (and pays for) things, such as:
Maintaining common areas like lobbies and community courtyards. Regular cleaning and landscaping. Repairs and upkeep. Parking lot maintenance. Additional amenities, such as pools or fitness centers. Rules governing what neighbors may do with their property, also known as covenants, conditions, and restrictions (CC&Rs).
HOA Management
Property owners could handle everything themselves. Yet with more than a handful of homes, it’s common to hire an HOA management company instead. The HOA board, along with other members, makes decisions and then delegates the daily duties of running the HOA to the management company.
HOA Dues
Each homeowner pays HOA fees, typically monthly or every three months. Those funds go toward regular expenses. The HOA also sets money aside for future projects and emergencies by building up a reserve fund. Your HOA dues are paid in addition to your monthly mortgage payment.
Seven Ways HOA Dues Affect Your Finances
Before you commit to a home with an HOA, there are a few things you should know about HOA fees.
HOA Dues Can Change
HOA dues can go up or down. If that happens, you may have a hard time paying your home loan. HOA fees will rise when projects need funding, and they also may increase due to automatic inflation adjustments. Ask about the HOA’s history of raising fees, and find out about any planned projects or other changes in the works.
The Dues Don’t Cover Everything
Your HOA covers routine and planned costs. Often large projects and emergency repairs need immediate funding. In those cases, you may need to pay an additional special assessment. These assessments can cost several hundred dollars to several thousand dollars or more.
HOAs Can Affect Your Credit
When you buy into an HOA, you agree to pay HOA dues. If you don’t pay, you will owe the HOA money, and the HOA can send your past-due account to collections. The HOA can also put a lien on your property. Skipping HOA fees can even lead to foreclosure in some cases. Collection accounts and public records may appear on your credit reports, making it harder for you to get other loans or find housing in the future.
You Pay for Things You Might Not Use
HOA dues cover costs for common areas around your property, but you might not enjoy or even want all that you’re paying for. That’s a tradeoff of living in a shared space. For example, you might not use the pool or rooftop, but you need to pay for them anyway.
You Probably Won’t Save on Taxes
HOA dues are typically not tax deductible for the home you live in. If you own a rental property and pay HOA fees, you could get a tax break. The home office deduction might also provide some relief if you have an office in your home. Check with a CPA or tax preparer to find out whether you can get any tax savings for your HOA payments.
You May Need to Pay Dues at Closing
When buying a home with HOA dues, be ready to pay for every day you own the property, starting on day one. You may see a line item on your closing papers showing HOA dues.
You Still Need Insurance
HOA dues pay for a master insurance policy. But those policies typically don’t cover your personal property, the home you live in, the inside of your unit, damage that comes from your unit, or your personal liability. Speak with an insurance provider to determine what your risk is, and find out what type of policy makes the most sense for you. Price those policies before you buy an HOA-managed property so you have a clear picture of your future costs.
Rules and Restrictions
In addition to handling finances and maintenance duties, HOAs are tasked with setting and enforcing rules in your community. Bylaws and CC&Rs can cover numerous topics, including:
PetsSmokingMaintenance requirementsExteriors (including paint)Landscaping responsibilities and restrictionsParkingNoise limitsWhether owners are allowed to rent out units or notChanges and visible attachments to your homeBusiness use of your home
In some cases, you’ll be glad there are rules. They may keep you safe, protect your home’s value, and allow you to enjoy your neighborhood. Some rules may not work for you, and you need to know about any conflicts before you buy. At the end of the day, it’s your choice whether to buy a property or not. You get to decide whether you’ll be able to follow the rules.
