Wondering what HOA stands for?” You’re in the right place. An HOA is an organization responsible for maintaining the property value of a given community. If you purchase a home that is part of an HOA, you will be responsible for paying its fees and following its rules. Failure to do so will mean being subject to fines. Therefore, homeowners should carefully consider the pros and cons of HOAs.
If you want to buy a property in a managed community, a townhouse, or a condominium, you may find that the price of your potential property includes something called an HOA fee. An HOA, or homeowners’ association, is a non-profit organization that invests in the community, provides amenities, and maintains the appearance of the common spaces and buildings. Usually, the HOA’s work is to your benefit, as it provides well-maintained common spaces and gives the neighborhood a cohesive look.
HOAs, however, are not for everyone, and deciding whether to purchase an HOA-participating home is an important decision. After all, you will have to pay the fees and abide by the rules. This is a decision you should make only after careful consideration. In this article, we will explain what an HOA is, how it works, how it’s managed, what its fees cover, and how to decide if you should join an HOA.
What is a homeowners’ association?
An HOA, or homeowners’ association, is a non-profit organization that creates and enforces restrictions and rules that the homeowners in neighborhoods, condominiums, and buildings must follow. The long-term purpose of an HOA is to protect and increase the property value of homes in a given area.
They also provide safety, maintain the property, and guarantee the maintenance of common areas. HOAs are the most common type of community association. According to the Foundation for Comunity Research, approximately 60% of community associations are HOAs, 37% are condominium communities, and 3% are cooperatives.
How do HOAs work?
You will automatically join an HOA if you purchase a property or home that is part of an HOA. By purchasing this property, you agree to be in the HOA, follow its rules, and pay the associated fees. HOA have become increasingly popular. In 2022, there were an estimated 365,000 HOAs in the U.S. That represents 74.1 million Americans and a quarter of the U.S. housing stock.
HOAs work by charging regular fees that all members must pay. Normally, members pay the dues monthly or annually. The cost depends on the particular HOA that you and your home are part of. A board of directors oversees the HOA, and community volunteers support the board.
25% to 27% of Americans live in homes that are part of a community association.
As a member of the HOA, you receive benefits such as upkeep of common areas and security. You will also likely have some role in deciding who serves on your HOA’s board of directors. Given that an HOA is a non-profit organization, most HOAs rely on the help and support of community volunteers. As a member, you can volunteer to help the board or to assist the HOA in other ways.
Homes in community associations have a total value of over $9.2 trillion.
What do HOA fees include?
HOA fees go toward the maintenance of shared amenities and properties in your community. The HOA fees associated with a house legally have to be disclosed along with other property information. You will also have to agree to them on your Closing Disclosure.
Community associations collect more than $103 billion in assessments from homeowners every year.
According to the Foundation for Community Association Research, more than $103 billion are collected in assessments from homeowners every year. Nearly $26 billion in assessments are collected as association reserve funds for the repair, replacement, and enhancement of common property, such as replacing roofs, resurfacing streets, repairing swimming pools and elevators, meeting new environmental standards, and implementing new energy-saving features.
Your mortgage lender will also factor in your HOA fees. Before approving your mortgage, your lender will include the HOA fee into the monthly mortgage payment to ensure that you can afford it.
You should also expect a one-time home transfer fee when you purchase a new property. Depending on the HOA, there may be additional costs if repairs need to be made unexpectedly to shared appliances, known as special assessments. Lastly, you will have to pay fines if you do not obey the rules and regulations set forth by your HOA.
Here is a broad overview of where your fees may go:
- Landscaping services: Manicured plants and trees, green lawns, and parks. Your HOA will also clear snow and ice when appropriate.
- Social gatherings: Many HOAs have funds available to plan social events for the community’s members. Sometimes, the HOA plans these events. In others, community members can request funds to plan the social event themselves.
- Painting and roof repairs: If you live in townhouse developments where you share structures with a neighbor, such as a roof or a wall, you may find that your HOA will address repairs as needed.
How much are HOA fees on average?
HOA fees can be costly and vary widely depending on your location and the community. A Trulia (Zillow Group) study using American Community Survey records found that the monthly HOA fees in 2015 were approximately $331. However, the monthly average ranged from as low as $218 in one city in Michigan to a high of $571 a month in New York City.
The cost of your HOA fee will depend on a variety of factors, such as the age of your building and the number of complexes managed by your HOA. If you live in a building that is older or has many units, you should expect a higher HOA fee. Your HOA may also manage additional amenities, such as pools or recreational facilities, that will affect the monthly HOA cost. The more amenities, the higher the cost.
Homeowners association fees have been on the rise throughout the country. In 2005, the average monthly HOA fee among all households in the country stood at $250. By 2015, the average fee was $331” — Attack of the Killer HOA Fees
The fees may vary within a development as well depending on the location, square footage, and orientation of a property. All of these factors will change the upkeep required and thus affect the HOA fee. Some developments within an HOA may have a gate and security guard, for example, while others may just have a sign and a simple landscape. These factors will change the amount you are expected to pay to be part of the HOA.
Examples of homeowners’ association rules
Rules vary by HOA, and they can limit members’ ability to exercise a wide range of their rights as homeowners. Good HOA rules protect you and your property. Before you agree to join an HOA, make certain you agree with and understand all its rules. Make sure you read the rules and regulations of the HOA before purchasing a house in an HOA community and before signing the HOA membership form. This is a legal document, remember, so don’t take it lightly like you do those agreements you’re supposed to read when you install mobile apps. Breaking an HOA’s rules could have serious consequences, so make sure you know the rules before you agree to them.
Below is a list of some examples of HOA rules that you might find:
- Landscaping choices: You should expect some sort of restrictions as to what you can and cannot do with your landscaping. Your HOA may have a list of approved and not approved plants and trees, and expectations for what your landscape looks like.
- External decor: Your HOA may have specific guidelines for the color of your house, front door, and roof shingles. Before changing any of these, you will likely have to confirm your choice with your HOA.
- Outdoor structures: HOAs commonly have rules for all of the following: what fencing types you can have and how tall your fencing can be, which outdoor structures like decks or pools are allowed, the home maintenance standards you must satisfy, and what holiday lighting you may use.
- Parking: Many HOAs regulate the number of vehicles that can park on your property or your street. Often, you will have to follow these limits or request permission from your HOA for a temporary car park. You may also find bans on recreational vehicles, boats, lawn equipment, and unattended bicycles outside of your house.
- Other regulations: Other potential restrictions could be related to pets, occupancy, renting bans, subletting bans, and acceptable noise criteria.
If you already own a home and need extra funds to cover the cost of things your HOA doesn’t take care of, or if you don’t have an HOA to handle something you want fixed, maybe it’s time to dip into your home’s equity.
How to finance a home in an HOA
Approximately 25% to 27% of homes are part of a community association. So if you’re buying a home, there’s a good chance it will have an HOA attached. Buying an HOA home is practically the same as buying any other home. However, you may be required to pay three to six months of HOA upfront and include the ongoing payments in the mortgage escrow account.
Whether the next home you buy is or isn’t part of an HOA community, your experience will be better with the right financing. SuperMoney’s search tools and unbiased real-customer reviews can help you find the best deal for your next home-purchase mortgage. Comparing multiple lenders can save you thousands of dollars over the life of a mortgage.
What does the HOA board do?
As previously mentioned, a board of directors oversees the HOA. In most cases, the board members are responsible for handling the finances and enforcing the rules of your HOA.
The exact responsibilities of the board vary depending on the expansiveness of your HOA organization. Some HOAs are only responsible for maintaining landscaping in common areas. Other HOAs manage multiple communal properties and spaces, such as recreation facilities, swimming pools, party rooms, and landscaping. An HOA is responsible for budgeting according to the community’s needs and for securing the proper number of board members and volunteers to oversee its duties.
As for the rules set forth by the HOA, the authority to make and enforce these rules typically belongs to the board. These rules are in place to protect the community’s property values and residents. The goals of HOA rules are
- Ensure that homeowners who eventually sell their properties get a decent price and
- Protect the well-being of the people who live in the community. We strongly recommend you reach out to your potential HOA and read its community rules and regulations before purchasing a home in the community.
As a future homeowner, you want to make sure you agree with the current regulations and feel comfortable with where the money you pay to the association will be going.
Here is a list of HOA benefits and drawbacks to consider.
- You are no longer responsible for confronting difficult or loud neighbors. With an HOA, you can report neighbors who disrespect the rules and let the board of directors handle the situation.
- You are not responsible for maintaining common spaces and can enjoy that these spaces are well maintained for you to enjoy, whether they be green parks in the summer or clear paths in the winter.
- You have the opportunity to meet neighbors with shared interests through fun social events.
- You will have to pay additional money to live in these communities and may be subject to fines.
- Your HOA dues will increase your monthly expenses, possibly reducing the size of the mortgage loan you can afford. Read more here for SuperMoney’s tips on how to finance your home purchase!
- You may not agree with all the rules of your HOA and may have trouble following its regulations, especially if you are someone who values flexibility and freedom.
Are HOA fees tax deductible?
Generally, if the property is your primary residence, you cannot deduct HOA fees on your taxes. However, if it is a rental property, you may be able to claim a tax deduction.
What do HOA fees cover?
As mentioned above, HOA fees cover a wide variety of amenities. They cover the upkeep of common and shared spaces, such as parks, sidewalks, and roads. Your HOA may also provide recreational spaces and activities.
What is the purpose of an HOA?
The purpose of an HOA is to protect your property value and provide a pleasant living experience for all community members.
Is HOA added to the mortgage?
Yes, your loan underwriter will factor in the cost of your monthly HOA fee before approving your mortgage. This ensures that you stay on budget and are able to afford the cost of the HOA. You have other options for financing your home purchase, of course, but these may not cover HOA fees. Learn more about how to use a personal loan to buy a home.
Can you refuse to join a homeowners’ association?
If you purchase a home that is part of an HOA, you cannot refuse to join. Purchasing a home that is part of an established HOA is a commitment to being a member of the HOA, paying the associated dues, and following the regulations.
- If you purchase a home that is part of an HOA, you will be responsible for following its particular rules and regulations and paying monthly or annual dues. HOAs then use your fees to maintain the appearance of the community and to protect your property’s value.
- An HOA is managed by a board of directors. The board is often voted upon by the community, and its members are often selected from among the community’s residents. This board of directors manages the finances and enforces the rules.
- You should ask for the HOA’s bylaws before purchasing a home that is part of an HOA community. These bylaws will list the rules and regulations. They also designate which aspects of property maintenance are the responsibility of the association and which are the responsibility of the homeowner.
Is an HOA right for you? Ask yourself these questions
Before you purchase a home that is part of an HOA, you should ask yourself these questions:
- Are the benefits of the HOA worth the extra cost?
- Do the rules and regulations of the HOA fit with your lifestyle and values?
- Can you see the positive effects of the HOA in the community — are the spaces clean and well managed, and do the neighbors seem happy with what the HOA does for them?
Asking yourself these questions is critical before purchasing a house subject to an HOA. You should also read all the terms and conditions of the particular HOA and consider meeting with the board of directors if you have any outstanding questions. Ultimately, if you find that an HOA community’s values align with yours, you can join with enthusiasm.
View Article Sources
- Are condo/co-op fees or homeowners’ association dues included in my monthly mortgage payment? — Consumer Financial Protection Bureau (CFPB)
- U.S. Community Association Statistics — Foundation for Community Research
- Attack of the Killer HOA Fees — Trulia
- End-user License Agreements — Arthur W. Page Center, Pennsylvania State University
- HOA FAQs — Alabama Secretary of State
Another state-specific example of HOA operations.
- HOA Fees: What Are They, What Do They Cover And What Happens If You Don’t Pay? — QuickenLoans
- Homeowners’ Associations — City of Killeen, Texas
A glimpse into how HOAs work in Texas, where they are officially called property owners’ association (POA).
- Living in a California Common Interest Development — California Department of Real Estate
In California, HOA communities are called Common Interest Developments (CIDs). This guide provides an overview of such communities in the Golden State.
- What Are Covenants, Conditions & Restrictions (CC&Rs) in HOAs? — Nolo
- What is a Closing Disclosure? — Consumer Financial Protection Bureau (CFPB)
- Can You Use A Personal Loan To Buy A House? — SuperMoney
- How to Buy a House — SuperMoney
- How to Finance a House — SuperMoney
- The Ultimate Guide To Buying A New Home — SuperMoney