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What Is a Homeowners Association?

Matt Frankel, CFP®
By: Matt Frankel, CFP®

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If you're in the market for a home, some of the homes on your shortlist may be in neighborhoods with homeowners associations, or HOAs. In this article, we'll cover what HOAs are, what they do, why they cost so much, and more.

What is a homeowners association or HOA?

A homeowners association, or HOA, is a governing body that oversees a neighborhood or community. In most cases, HOAs are run by residents that live in the community. This is typically done through a board of directors who are elected by the entire neighborhood. However, in newer neighborhoods, the HOA may be run by the developer until all of the buildable lots are sold and the developer has completed the neighborhood.

While HOAs are often considered as the "neighborhood police" that tell residents what they can and cannot do, that isn't why they exist.

HOAs do a lot of things. Enforcing community rules is definitely one of them, especially when it comes to maintaining architectural standards. They also authorize and oversee capital projects, maintain common areas, set a neighborhood budget, and collect HOA fees from homeowners. But HOAs do everything with a single goal in mind: to increase property values.

What are HOA fees?

HOA fees, also known as HOA dues, are contributions each homeowner is required to make to the HOA's budget. Some neighborhoods assess monthly dues. Others only send homeowners quarterly, annual, or semi-annual bills.

We'll go over what these fees cover in the next section. HOAs are legally allowed to assess dues that are agreed upon by the board of directors. If you don't pay your HOA fees, the association can take collection actions up to and including putting a lien on your home and starting foreclosure proceedings. That's usually only done as a last resort when a homeowner is several years delinquent. But the point is that if you buy a home in an HOA-run neighborhood, you're legally obligated to pay whatever HOA fees the board agrees on.

Common HOA costs and fees

HOA fees help cover a number of expenses incurred by the neighborhood. Here's an overview of some of the more common expenses your HOA fees are used for:

  • Common area maintenance. In many cases, landscaping costs for common areas are the single largest HOA expense.
  • Community amenity maintenance and operating expenses. Some neighborhoods have community pools, playgrounds, and other amenities available for residents' use. HOA fees cover expenses related to the maintenance and operation of these, such as regular pool cleaning.
  • HOA management company. Most HOA boards are made up of volunteers and hire third-party community managers to handle the day-to-day operations.
  • Utilities. Paying for electricity and water is a major part of most HOA budgets.
  • Insurance. HOAs need liability insurance in case the association gets sued.
  • Postage. It often surprises people how much postage HOAs go through. Between mailed copies of HOA fee billing statements, late notices, community newsletters, and other communications, postage can easily reach into the thousands of dollars per year for even a mid-sized community.
  • Reserves. In order to be financially healthy and prepare for the unexpected, most HOAs allocate a portion of fees to reserves. It's common to reserve 10% of the budget, but it can vary.
  • Capital improvements. HOAs use some of their fees to improve the neighborhood in the spirit of keeping property values high. In many associations, this is one of the largest components of the HOA's budget.

Be aware this list isn't exhaustive and not all of these things will apply to every neighborhood.

Pros & cons of homeowners associations

Like every other aspect of buying a home, living in an HOA-run community has advantages and drawbacks. Here are some of the most common to consider before buying your next home.

Pros of HOAs

Amenities. HOA neighborhoods often have more amenities than neighborhoods without homeowners associations. It's common to find community pools, parks, green spaces, walking trails, and more in HOA neighborhoods.

Property value protection. The actions of other homeowners can't damage the value of your property. For example, cars parked in residents' front lawns can cause the value of homes in an entire neighborhood to decline, so most HOAs prohibit it. HOAs typically require all homeowners to keep their landscaping to a certain standard. They also mandate that no exterior modifications can be done without approval.

Cons of HOAs

Lack of freedom. One of the biggest complaints about living in an HOA neighborhood is there is a book of rules about what homeowners cannot do.

Costs. This is an obvious drawback but it's worth mentioning. All other factors being equal, HOA fees make your mortgage more expensive than a home that isn't in an association. You can use our mortgage calculator to get an idea of how HOA dues may impact your total monthly mortgage payment.

Dealing with processes. Even if you follow the rules of an HOA neighborhood, you'll find it more of a process to modify your property. For example, doing extensive landscaping or getting a swimming pool can result in several rounds of back and forth before the HOA's architectural review committee approves it.

What should I ask about the homeowners association before I purchase?

In addition to the obvious question of how much an HOA costs, here are some other questions to ask before you buy a home in an HOA community. And if you're new to the home-buying world, check out our beginner's guide to home loans to learn even more about what to expect when purchasing a home.

What are the homeowners association's rules & bylaws?

You should request a copy of the HOA rules and bylaws before you make an offer to buy a home to make sure you're willing to comply with them.

How is the HOA run?

Is the HOA still run by the neighborhood's developer, or is it run by a board of community members? There are several implications to this. For example, developers tend to keep HOA dues artificially low in order to make homes more appealing to buyers, but they tend to increase once the residents take over. Conversely, it can be easier to ask questions or get help from an HOA board member who lives down the street than a developer's representative in a corporate office somewhere.

What is the HOA's financial situation?

Mortgage lenders will likely want to see the HOA's financials, but you can request this as well. The things to look for are substantial funds in reserves and a relatively small percentage of homeowners delinquent on their dues.

What is included in the HOA fees?

There are two HOA fee components you should consider when comparing neighborhoods -- price and amenities. For example, a $50 monthly HOA fee in a neighborhood with a community pool might be more attractive than a $30 monthly fee in a neighborhood without one.

What projects are in the works?

HOAs typically keep homeowners in the loop when it comes to capital projects that are being considered or in progress. You (or your real estate agent) should be able to find this out fairly easily.

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  • A homeowners association, or HOA, is a governing body that oversees a neighborhood or community. Its top mandate is to maintain (and hopefully increase) property values.

  • HOA fees, also known as HOA dues, are contributions each homeowner is required to make to the HOA's budget in order to cover common area maintenance, capital projects, and much more.

  • Some of the top questions to ask before buying include:

    • How much are the HOA dues?
    • How often are HOA dues collected?
    • How is the HOA run?
    • What is the HOA's financial situation?
    • What is included in the HOA fees?
    • What projects are in the works?

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