Homebuyers are inundated with countless property assessments and inspections during their buying processes, but many overlook thorough evaluation of homeowners associations (HOA).
In certain communities, homeowners are required to join HOAs and pay monthly fees as membership. Typically, community members govern their HOAs, setting community guidelines, managing disturbances, solving safety concerns, and creating new rules to maintain satisfactory curb appeal for all properties within the community. HOAs hold regular meetings to collaborate, educate, and vote on upcoming changes.
Savvy home shoppers complete their due diligence prior to making offers on homes. Review these four considerations before buying into HOAs.
- Lifestyles and Rules
The first step to understanding HOAs is gathering the associated documents. Homebuyers pay fees to attain HOA documents, and sometimes skip the step to avoid seemingly unnecessary costs. Plus, access occurs later in the escrow process when buyers are emotionally committed to their purchases. It’s difficult to walk away from properties after all the financing, bidding, and negotiating is complete. Some sellers provide HOA documents to buyers to help them make informed decisions earlier. Regardless, wise shoppers buy and carefully evaluate the lengthy documents detailing community rules.
Standard HOA guidelines include restrictions on property paint colors, style of curtains displayed in windows, appropriate number of cars in driveways, quiet hours for the community, and acceptable property upgrades. Standard homeowner do-it-yourself projects are drastically limited by HOAs. Buyers should evaluate the lifestyles they currently lead, and contemplate whether their personalities fit their prospective HOA rules.
- Monthly Dues
Homebuyers are budgeting for the most expensive purchases of their lifetimes, so each fee needs evaluation. Initial charges include the down payment and closing costs followed by numerous monthly charges. HOA fees are monthly costs homeowners should calculate into their total mortgage payments along with homeowners insurance, property taxes, principal, interest, and private mortgage insurance when down payments are less than 20 percent of the total sale price.
Before closing, review HOA financial statements to ensure property bills are paid and significant fees are allocated to the reserve fund for future property repairs.
- HOA-Required Property Renovations
Beyond mortgages, maintenance is the most costly aspect of homeownership. HOAs govern when properties are due for upgrades and charge members additional fees to fund improvements. Property assessments may surprise HOA members, potentially doubling their monthly housing bills for extended periods.
Thorough buyers read through the HOA meeting minutes to gather more information about upcoming improvements, and reference the reserve study to confirm whether costs are accumulated or slated as upcoming levies.
- Long-Term Homeownership Goals
Although many buyers purchase homes as primary residences, many first-time buyers plan to rent their starter homes in the future. HOAs commonly restrict the total number of owners eligible to rent their condo units, sometimes at 20 percent or less. The purpose of controlling owner-occupancy rates is to ensure future buyers have access to common loan programs. Conventional and Federal Housing Administration (FHA) loan standards limit the total owner-occupancy rates, only granting loans to borrowers in qualified condo developments. FHA loans require 51 percent owner occupancy and conventional loans necessitate 70 percent. Therefore, HOAs can restrict owners from leasing their properties for passive income to maintain the widest pool of future buyers.
Home shoppers should evaluate the disadvantages of buying into HOAs before purchasing properties. Whether the cost of monthly fees and future assessments deter buyers, or the lifestyle restrictions of keeping lawns mowed and living onsite for the next 30 years seems impractical, buyers should weigh these considerations thoughtfully for satisfactory investments.
Tali Wee is a Marketing Content Specialist at Zillow.com. She writes about personal finances, mortgages, and home improvements for the Zillow Blog and other Zillow partners.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.