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Should You Buy a Home in a Neighborhood with an HOA?

The number of homeowner associations (HOAs) is growing. What are the financial implications?

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When shopping for a new home, you focus on a number of financial factors, chief among them the sales price you can afford given your down payment and going mortgage interest rates. On top of that, you factor in how property taxes and homeowners insurance will affect your monthly mortgage payment.

Today’s homebuyers also need to consider the likely possibility that they will be subject to a homeowners association (HOA), which adds to monthly expenses and comes with other potentially serious financial implications.

What is an HOA?

Typically, an HOA is set up when a developer builds a neighborhood, but it can also be established later by residents. Either way, the HOA adopts a set of bylaws or rules that residents must live by. Likewise at its outset, it determines the amount of monthly HOA dues, which are used to maintain all common areas of the neighborhood, such as its entrance, swimming pool, club house and green spaces. Most HOAs have mandatory monthly dues, but a few have voluntary ones.

An HOA is run by residents who are elected to its board from among the neighborhood. These elected neighbors ensure that the HOA meets its obligations to common areas, collects all resident dues, maintains the budget and enforces the HOA rules, which typically cover things like:

  • Home and lawn maintenance obligations
  • Architectural addition requirements
  • Holiday décor standards
  • Noise and occupancy limits
  • Parking and trash removal guidelines
  • Pet controls
  • Short-term rental restrictions

How prevalent are HOAs?

According to the U.S. Census Bureau, the percentage of new single-family houses sold with an HOA is increasing. In 2009, 62% of them were subject to an HOA. By 2022, it had risen to 84%. HOAs for completed new houses are most prevalent in the South and West where their number more than tripled in that 13-year time span.

HOAs are also common in neighborhoods made up of townhomes and in condominium complexes. If you choose to live in a 55+ community, you can expect an HOA to be a part of the deal.

Most experts attribute the rise in HOAs for new single-family home developments and other communities to a simple fact: It reduces the financial strain on municipal governments when developers build infrastructure like roads for their developments, and HOAs maintain common areas within them thereafter through the owners’ HOA dues.

What are the homeowner benefits of an HOA?

Municipalities aren’t the only ones who benefit from HOAs. Homeowners subject to them enjoy these advantages:

  • HOA-maintained neighborhood amenities that often include a swimming pool, playgrounds, parks and sometimes a golf course
  • High standards for the exterior condition of neighborhood homes and lawns so that the aesthetic appeal of the community is always maintained
  • Board enforcement of the HOA rules, eliminating the need for residents to personally confront neighbors over such issues
  • Potentially increased property value by as much as 4% compared to non-HOA homes per the Journal of Urban Economics
  • A sense of community developed through year-round activities and events sponsored by the HOA like welcome committees, block parties, seasonal celebrations and holiday parades

Are there disadvantages to owning a home with an HOA?

There are some downsides to HOAs that buyers should be aware of before buying a home with one:

  • The HOA fee is an added monthly home expense on top of your mortgage payment, utilities, general upkeep and repairs.
  • Depending on its bylaws, the HOA may be able to raise monthly dues or charge a special assessment for neighborhood improvements without warning.
  • The home or lawn maintenance requirements may be extensive, putting a larger-than-expected burden on your budget.
  • A lien can potentially be put on your home if you haven’t paid your dues or are accused by the HOA of violating its rules. In some cases, this has even led to foreclosure.
  • When you decide to sell your home, the existence of an HOA could possibly discourage some buyers who don’t want to live within an HOA-governed community.

How to find out more about an HOA before buying a home?

Before making an offer on any home, ask your realtor or the sellers if it is governed by an HOA. If it is, request the following information to determine whether this is a property you really want to pursue:

  • A review of the HOA bylaws
  • The amount of monthly dues
  • Copies of past meeting minutes to get a sense of ongoing issues
  • A list of the current board members
  • A history of any increases in monthly dues and/or special assessments by the HOA
  • A summary of the HOA’s annual budget and the amount of its reserve fund for repairs and renovations
  • If possible, an invitation to the next HOA board meeting
  • Notice of any outstanding HOA issues or liens on the home incurred by the current owners and assurance that this will be resolved prior to closing

Additionally, it helps to gauge resident satisfaction with the HOA board’s control from a sampling of potential neighbors. You also want a sense of how many liens, judgments and foreclosures the HOA has recorded during its existence. A check of your county’s court website will tell you this.

Make sure you’re comfortable with all the information you gather about an HOA before buying a home because your life will be intertwined with it the entire time you live in your new neighborhood.

Yay or Nay to HOAs? Tell us in the comments at the very bottom of this page!

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CUNA 2023 diamond award trophy icon

CUNA 2023 Diamond Award Winner

Financial Education

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