Homeowners Association (HOA) dues are fees that homeowners in communities with HOAs pay for repairs, maintenance, and improvements to the neighborhood. For people who live in a condo or townhome, their HOA fees may also be used for repairs and improvements to the building itself. When you figure out how much your monthly mortgage payment will be, you might not realize that HOA payments can add a lot to your housing costs. Before you buy a house in a HOA, find out where your money goes and what you can expect from your HOA dues.
HOA Overview
An HOA is a group of homeowners in the same neighborhood or building who work together to set rules, share costs, and take care of common areas. For instance, every condo owner in the same building usually belongs to the same HOA. The HOA decides what to do and pays for things like:- taking care of public spaces like lobbies and courtyards.
- Regular cleaning and landscaping
- Maintenance and repair.
- upkeep of the parking lot.
- Pools and fitness centers, for example, would be nice.
- Covenants, conditions, and restrictions are the rules that say what neighbors can do on their own land (CC&Rs).
HOA Management
The owners of the property could do everything themselves. But when there are more than a few homes, it's usually better to hire an HOA management company. The HOA board and other members make decisions and then give the management company the daily tasks of running the HOA. When you buy a home in an HOA neighborhood, you don't get to choose whether or not to join. When you buy that house, you join the HOA and have to pay dues.HOA Dues
HOA fees are usually paid once a month or every three months by each homeowner. Those funds are used for regular costs. By building up a reserve fund, the HOA also saves money for future projects and emergencies. In addition to your monthly mortgage payment, you have to pay your HOA dues.How HOA fees affect your money in seven ways
Before you buy a home with an HOA, you should know a few things about HOA fees.
Dues for HOAs can change.
Dues for an HOA can go up or down. If this happens, it might be hard for you to pay your home loan. HOA fees will go up when projects need more money, and they may also go up because of automatic adjustments for inflation. Ask how often the HOA has raised fees in the past and if any projects or other changes are planned. When you're getting ready to buy a home with an HOA, you and your lender should look at the HOA dues to see if you can pay for both the loan and the dues.Dues aren't enough to cover everything.
Your HOA pays for costs that are normal and planned. Large projects and repairs that need to be done right away often need money right away. In these situations, you may have to pay a special assessment on top of what you already owe. These evaluations can cost anywhere from a few hundred to a few thousand dollars or more.Your credit can be hurt by HOAs.
You agree to pay HOA dues when you buy a home in an HOA. If you don't pay, you will owe money to the HOA, and the HOA can send your past-due account to collections. A lien can also be put on your property by the HOA. If you don't pay your HOA fees, you could even lose your home. Your credit report may show collection accounts and public records, which could make it harder for you to get other loans or find a place to live in the future.You spend money on things you may or may not use.
The cost of common areas around your property is covered by your HOA fees, but you might not like or even want everything you're paying for. That's the cost of living in a place with other people. For instance, you may not use the rooftop or pool, but you still have to pay for them.Most likely, you won't save money on taxes.
Most of the time, you can't write off HOA fees for the home you live in. You could get a tax break if you own a rental property and pay HOA fees. If you have an office in your home, the home office deduction might also help you out. Check with a CPA or tax preparer to see if your HOA payments can save you money on your taxes.You might have to pay fees at the end.
When you buy a home with HOA fees, be ready to pay for every day you own the property, starting on the first day. On your closing papers, there may be a line for HOA dues. HOAs keep a reserve fund, which can help with big expenses and surprises. Before you buy a home with an HOA, you should look at their financial statements and see how much money is in the reserve fund. When there's no rainy-day fund and the reserve fund is low, it's more likely that assessments will be made.Still, you need insurance.
A master insurance policy is paid for by the HOA fees. But these policies usually don't cover your personal belongings, your home, the inside of your unit, damage that comes from your unit, or your personal liability. Talk to an insurance company to figure out what your risk is and what kind of policy would be best for you. Before you buy a home managed by an HOA, make sure you know how much these policies will cost you. This will help you plan for your future costs.There are rules and limits.
In addition to taking care of finances and repairs, HOAs are responsible for making and enforcing rules in your neighborhood. Before you buy a home, you should find out what the rules are so you won't be surprised later. Check the HOA's covenants, conditions, and restrictions (CC&Rs), ask for minutes from recent meetings and look at homes in the area to see how strict the rules are. Bylaws and CC & Rs can talk about many things, such as:- Pets
- Smoking
- Maintenance requirements
- Exteriors (including paint)
- Responsibilities and rules about landscaping
- Parking
- Noise limits
- Whether or not owners can rent out their units,
- Changes and additions to your home that can be seen
Using your home for business
In some situations, you'll be glad rules exist. They might help keep you safe, protect the value of your home, and allow you to enjoy your neighborhood. You may not be able to follow all the rules, and you need to know about any problems before you buy. At the end of the day, it's up to you whether or not you want to buy a property. You get to decide if you can follow the rules or not.