Factoring HOA Into Your Home Purchase

Homeownership is a significant purchase. Buying a new home in a neighborhood with a homeowners association (HOA) is a big commitment that can inflate your housing costs. HOA dues can be costly and blow a monthly housing budget if you don't have all the facts upfront. An HOA can also inhibit any home improvements you wish to make.

The builder or developer establishes a non-profit governing neighborhood body. It could be a single-family home, condominium or townhouse. This is the homeowners association. The HOA directs the maintenance of the common areas. They also set the rules to keep the neighborhood status quo.

Keeping the neighborhood status quo maintains or improves your property value. But this all comes at a price. In accordance with the HOA's Covenants, Conditions and Restrictions (CC&Rs), their governing documents, they have the right to charge monthly dues and periodically levy special assessments to you.

​Consider also​: What is a Property Owners Association?

When buying a new home, you may know to use a mortgage calculator when analyzing your mortgage rate and closing costs. Of course, you always want to know your monthly mortgage payment. But monthly HOA dues should also be factored into your monthly housing costs. They can contribute significantly to your overall monthly expenses.

A lender wants to know if there are homeowners association fees. She will also want to know if there are frequent assessments. This information establishes the loan amount your loan officer is comfortable offering.

Buying a new home in a neighborhood with a homeowners association (HOA) is a big commitment that can inflate your housing costs.

Homebuyers should discuss the HOA with a real estate agent. Ask for the CC&Rs and ask how often monthly dues are increased. Are there late fees? Over the years, an annual increase can blow a monthly budget.

You'll also want to investigate how much of a reserve fund the HOA has. For example, do they have enough to handle any large expenditures, or will there be an assessment whenever something needs to be done?

What are the bylaws concerning the board of directors? Do they run the community, or do they have a company manage it for them? You might want to talk to them and find out their mindset. Speak to the new home's neighbors.

Ask them about assessments and possible increases. You may be spending your savings on your new home down payment with no cushion for a hefty assessment. And finally, are there any fines if something isn't done correctly?

​Consider also​: How to Find the Homeowners Association Associated with Your Address

You may fall in love with a home that needs some work. Or maybe that new home isn't quite to your taste, and you want to make changes. Before you purchase, make sure there isn't a covenant preventing you from making a change.

Read the CC&Rs. They can be strict about what you can and cannot do. For example, you may not be able to take down that tree that's blocking the view of the lake. Even a mailbox change can be prohibited if you don't receive permission before doing it.

One goal of an HOA is to keep all the homes and yards looking consistent. If you want to put your footprint on your new home, you may be hampered.

HOA fees can cost thousands of dollars a year, depending on your neighborhood. But unfortunately, if you live in your home full-time, you cannot claim HOA dues on your income tax return. If your home is being used as a rental, you can write off the monthly fees. It is considered a business expense.

​Consider also​: What do Homeowners Association Fees Pay For?

There are benefits to an HOA that justify the fees. An HOA covers the insurance costs of the common grounds. You'll still need homeowners insurance, but you won't be liable for as much.

Lawn upkeep and snow removal are provided. And you'll have the security of knowing that your property and your neighbors'' property are neat and well maintained.