What is a Homeowners Association and what you should know about HOAs

If you’ve shopped for a home, driven through certain types of neighborhoods or condos and townhomes, you’ve likely heard the term Homeowners Association (HOA). But unless you’ve been living in a place that requires you to understand them, you may not even be fully aware of what they are or the purpose for which they exist. So, what is a homeowners association and what does it do?

The answer is fairly straightforward. Yet you may still need some clarification regarding some of the details about HOAs. For example, what does an HOA do? Why does it play a significant role in some communities?  What do you need to know if you’re thinking about buying a home that has an HOA? Here’s what you need to know.

An HOA is a governing body typically set up by a real estate developer or a group of homeowners. It’s used to manage a neighborhood, condominium, or planned community. An HOA may enforce rules for the community and collect funds from homeowners for the community’s needs.

In other words, HOAs are responsible for maintaining community standards and ensuring the neighborhood remains a desirable place to live. Membership is often mandatory for property owners in the community.

An HOA manages various aspects of life in a community. For example, they typically maintain common areas within the community. That means they’ll oversee the upkeep of shared spaces. In some communities that may include parks, pools, and clubhouses. In smaller condos or townhouse locations, it may simply include landscape maintenance. The goal is to ensure common spaces remain clean, safe, and enjoyable for its residents. Part of this upkeep involves collecting dues, either monthly or annually, to fund services and repairs.

HOAs also establish and enforce guidelines known as Covenants, Conditions, and Restrictions (CC&Rs). CC&Rs govern property appearances, noise levels, pet policies, and more. Because they are recorded with the county clerk, they are enforceable, and the HOA can impose penalties if a homeowner doesn’t follow those guidelines. An HOA may also mediate disputes between neighbors or address concerns related to community rules to ensure a more harmonious living environment.

The costs of an HOA can vary as much as the properties that are available to purchase. An HOA determines how much its fees will be based upon a variety of factors. While some Homeowners Associations may simply charge for trash removal or lawn mowing services, others may charge premium prices for security gates, swimming pool upkeep, golf course maintenance, and even for community-specific positions like a social director.

In short, it can cost as little as $100 per year, or thousands of dollars a month for a luxury community. It depends on the community. It’s good to know that HOA fees contribute to property value by maintaining neighborhood standards and amenities. They can even provide even more value thanks to the enhanced community experience they provide. They can even increase a home’s value by an additional 4 percent. Unfortunately, failure to pay HOA costs can result in fines, loss of access to amenities, or even legal action, including property liens. Be sure to ask about a community’s HOA to learn the insides and outs of a community and how it might be managed.

If you apply for a mortgage with the intent of purchasing a home within a community with an HOA, keep in mind that these fees are not part of your mortgage. Like property taxes and insurance, homeowners pay HOA fees separately. Lenders include HOA fees as part of the determination for what they will allow buyers to borrow. But generally, you will not pay HOA fees as part of your monthly mortgage payment.

HOA fees will be factored into your debt-to-income ratio. If you are interested in purchasing a home with an HOA, talk to your lender about how to prepare to pay your HOA fees. As previously mentioned, some HOAs are more affordable than others. Be prepared by asking in advance what the community’s HOA covers and what the costs are so you will know how to discuss it with your lender.

Whether you’re a first-time homebuyer or a seasoned homeowner, understanding the role of an HOA can help you make informed decisions. Remember, a well-run HOA can enhance your living experience, but it’s essential to weigh the pros and cons to determine if it aligns with your lifestyle. When you officially know what a Homeowners Association can offer, you will be more appropriately prepared for what to expect and whether a home may be right for you.