When buying a home it is one of the largest financial decisions you will ever make. In addition to finding the right location, layout and price you need to know if it is part of a homeowners association.
Homeowners Associations (HOA’s) are organisations to manage and control communal areas and ensure there are rules in place within the neighbourhood. Often found within new build developments, condos, townhomes and many suburban areas. An HOA can be beneficial to some people providing valuable resources however can cause some to feel restricted due to the monthly fees, rules and extra responsibility.
Knowing more about HOA’s before putting an offer in can help you avoid unexpected costs and ensure it is a good fit for your lifestyle.
What is a Homeowners Association is a private organisation which consists of property owners. Most HOA’s are run by a board of directors, elected by the residents. These will manage how the community runs, communal facilities and ensure rules are being followed.
They can manage communal areas such as entrances, roads, pavements, gardens, pools, gyms, clubhouse’s or security. Within a condo or townhome development they can also manage the roof, outside walls, corridors, lifts and other communal areas.
Homeowners will pay regular fees to the HOA to provide these services. The amount paid can vary greatly depending on the area, facilities and the amount of maintenance. Some HOA’s charge small monthly fees whilst others can be several hundred per month.
It is important to know exactly what the HOA will cover. Two areas could have similar fees but very different services.
Impact of HOA Fees on the Home Buying Budget
HOA fees can play a big part within the home buying process. Whilst you may be eligible for a certain mortgage amount based on the purchase price, the monthly fees can impact how much you can comfortably afford.
HOA fees are generally taken into consideration by lenders when calculating your debt to income ratio. This can mean you may not be eligible for as high an amount as you originally thought. Ask your lender to calculate how much you would be paying per month, including your mortgage, council tax, home insurance and HOA fees.
It can also be a good idea to find out if there are any additional fees. Some communities can have:
One off fees (Transfer/Resale)
Special charges (Large repairs)
Move in/out fees
Facility Fees
Parking Fees
Rental Registration Fees
Penalties (Rules)
Special charges can be quite costly. For example if the HOA needs to do roof repairs, road repairs, plumbing upgrades or structural issues they can charge you more than your monthly fees. These can be a few hundred up to several thousand.
Ask if there are any charges planned/being discussed. It is also worth checking the HOA’s reserve fund. This is money they have put aside for future repairs. If they have a good amount in reserve this could show they have good financial planning.
HOA Rules and Restrictions
HOA’s can have rules which can impact how you use and alter your property. These are usually in the declaration, bylaws, covenants, conditions and restrictions, architectural guidelines and rules and regulations.
When purchasing it is a good idea to go through these. Common HOA rules can include:
Colours of the outside
Fencing, decking, patio and extensions
Gardening
Christmas Decorations
Parking and Vehicle Type
Pets and Breeds
Short Term Rentals
Long Term Leasing
Home Businesses
Noise and Occupancy
Satellite Dishes and Solar Panels
Whilst some rules may seem trivial, after moving in they can become important. If you know you want to put up a fence, park an extra car, rent out the property occasionally or have a certain pet ask in writing if this is allowed.
Some HOA’s require you to apply for architectural approval before you can make changes to your property. This can take some time. There could be rules around how they look, a fee to pay and other rules. Never assume you can do what you like on the outside of your property.
HOA Disclosure and Documents
During the property transaction you may be given an HOA Resale Pack/Disclosure Pack. This can contain the governing documents, budget, accounts, meeting notes, insurance, any violations and current/pending charges.
This can vary between states and the terms in your contract. However many times you will only have a short period to review these documents. If you find anything that you aren’t happy with you can cancel the contract with little penalty. Due to the short timescales it is best to ask for them as soon as possible.
Look closely at the finances of the HOA. Are they in debt? Have they been involved in any legal cases? Do they have low reserves? Are there regular increases in fees? And have there been large charges? The meeting notes can tell you more than just a basic budget. They can show if there are any ongoing issues, water damage, building issues and planned increases in fees.
You may also want to ask if there are any current violations. If there are any you may become responsible for them once you have completed the sale. Ask who is responsible for fixing the issue and if the seller will pay any costs.
Benefits of Having an HOA
An HOA isn’t always a negative thing and many people enjoy the structure and services provided.
By having an HOA managing the maintenance you won’t have as much to do. Having a well kept garden, clean communal areas and consistent outside can make the area more appealing. The rules can stop neighbours making changes which could affect the appearance and value of their properties.
If there are communal facilities such as a pool, playground, walk, clubhouse or gym this can be convenient.
Some developments also have the HOA manage security barriers, private roads, snow clearing, bin collection and outside insurance. This can make owning the property easier. Especially if you like a low maintenance lifestyle.
However this depends on how well run the HOA is. A good HOA will communicate well, have enough in reserves, enforce rules and use the fees wisely.
Questions to Ask When Buying an HOA Property
Your estate agent, lender, lawyer or property manager can help you decide if the HOA is good. Ask:
What are the current monthly/quarterly fees?
How often have the fees increased?
What are the facilities and services?
Are there any pending special charges?
How much is in the reserves?
Have they been involved in any legal cases?
Are there any rules around renting or occupancy?
Are there any rules around pets, parking or home businesses?
What happens if a homeowner doesn’t pay?
Have there been any recent or unresolved rule violations?
What insurance do they have?
Who is responsible for outside repairs?
Visit the area at different times. See how the parking, noise, gardens, communal facilities and overall maintenance. Talking to the current residents can give you an insight into how they communicate and deal with complaints.
Making an Informed Decision
Whilst an HOA can add value to the property there are financial and legal implications. You should treat the HOA the same way you would when viewing the property.
Don’t just look at the monthly fee. A low fee could mean there are not many facilities and/or they don’t have enough in reserves. A high fee could mean they have lots of maintenance and facilities. Just make sure the fees are reasonable and they have a good financial situation.
Before completion look through the HOA documents. Confirm all the fees, look into the charges and ensure the rules are suitable for your plans. If there is anything you are unsure about ask a professional.
The right HOA can help make a well maintained and enjoyable community. The wrong HOA can cause unexpected costs and frustrations. By doing your research early you can be confident with your decision and purchase a property which suits your budget and lifestyle.
