FEB 01 2025 | 8 minute read time

What Is a Homeowners Association?

A Homeowners Association (HOA) is a governing body created by a real estate developer to manage a planned community or condominium building. It serves as an organization made up of homeowners within the community who collectively uphold property values, enforce rules, and manage shared spaces. HOAs are common in newer suburban neighborhoods, condo complexes, and gated communities.

Here’s a quick snapshot of how HOAs work:

• Members are typically homeowners living in the managed community.
• Rules (called covenants, conditions, and restrictions—CC&Rs) dictate what can and cannot be done in the community.
• Monthly or annual fees are collected to fund operations, maintenance, and amenities.

Amenities

One perk of HOAs is access to communal amenities like swimming pools, fitness centers, parks, and event spaces. Always review their quality and upkeep because you are paying for them through HOA fees.

Restrictions

HOAs often impose restrictions to protect property values. These can include limits on fence heights, rules about parking RVs or boats, and even external holiday decorations. Be sure these don’t conflict with your lifestyle.

Fees and Finances

HOA dues fund everything from landscaping to amenity maintenance. HOA fees vary depending on the state and area you live in, though you can expect luxury communities to charge much higher than the local average regardless of which area you live in. Remember there may also be special assessments for unexpected expenses, like roof repairs for the clubhouse.

Should You Buy a Home in an HOA?

It’s not an easy decision, especially for first-time homebuyers trying to balance budgets and preferences. Here’s how HOAs can impact some of the financial factors related to your home purchase.

Impact of an HOA on Your Mortgage Application

Mortgage lenders consider your HOA fees when calculating your debt-to-income (DTI) ratio. Higher HOA dues can reduce the size of the loan you qualify for. It’s crucial to factor them in before making an offer.

What HOA Fees Will Be Included in Your Mortgage?

HOA fees are not included in your mortgage payment but are an additional cost you’ll need to pay directly to the association. Special assessments, if issued, will also come out of pocket. Budget accordingly to avoid surprises.

How Do HOAs Impact the Real Estate Value of Your Property?

Communities with HOAs often maintain higher property values because of regulations that prevent poorly maintained properties. However, restrictive rules or steep fees may deter certain buyers, potentially limiting your resale market.

Benefits of Buying Into a Homeowners Association

Living in an HOA community has its perks. For first-time buyers, these benefits may make it worthwhile:

• Well-Maintained Neighborhoods: HOAs ensure clean public spaces, manicured lawns, and uniform aesthetics.
• Access to Amenities: Enjoy shared pools, gyms, playgrounds, and event spaces without extra membership fees.
• Enhanced Property Values: Tighter rule enforcement can protect property values from drops caused by neglected homes.
• Conflict Mediation: HOAs often handle disputes between neighbors, saving you the trouble.

Drawbacks of Buying Into a Homeowners Association

Despite the benefits, there are drawbacks to consider too:

• Less Freedom: HOAs dictate aspects of your home, which can feel restrictive.
• Additional Costs: Monthly fees and special assessments add costs beyond your mortgage.
• Legal Risks: Non-compliance could lead to penalties or liens on your property.
• Management Issues: Poorly run HOAs can lead to financial mismanagement or maintenance delays.

Your HOA Research Checklist

To make the most informed decision, use this checklist before committing to a home in an HOA community:

• Ask for Governing Documents: Review CC&Rs, bylaws, and meeting minutes. These outline your rights and responsibilities.
• Research Monthly Fees: Confirm how much you’ll owe and check for any upcoming fee increases or assessments.
• Check Finances: Ensure the HOA’s financials are in good shape. Underfunded reserves may mean higher assessments in the future.
• Liaise with the Community: Talk to current residents about their experiences with the HOA. Are they satisfied with the management?
• Get Involved: Consider attending an HOA meeting to assess how decisions are made.

Start Your Homeownership Journey

Buying into a Homeowners Association isn’t a decision to take lightly. With clear benefits like well-maintained amenities and the potential for higher property values, HOAs offer great opportunities for a stress-free lifestyle. However, their costs and restrictions demand careful consideration.

If you’re ready to take the next step as a first-time homebuyer, our team of mortgage advisors can help you in evaluating HOAs that align with your financial priorities. It’s your home—make sure the community rules work for you.

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