What is an HOA? A beginner’s guide to homeowners associations

Are you considering buying a home in a community with an HOA? According to HOA-USA, there are more than 350,000 HOAs, representing some 40 million households nationwide.

What is an HOA? An HOA, or homeowners association, is an organization in a subdivision, planned community or condominium complex that makes and enforces rules for its properties. When purchasing a home with an HOA, you’re responsible for paying monthly or annual fees for the upkeep of common areas and building maintenance costs. The benefits of HOA membership are a more low-maintenance lifestyle, access to neighborhood amenities and a uniform community appearance. Before you make an offer on a new home with an HOA, here’s what you need to know.

How does an HOA work?

The first thing to know about how an HOA works is that membership is mandatory. As long as you own a home in that community, you’re responsible for paying the dues.

Second, it’s important to understand that HOAs have guidelines that all residents must follow. These guidelines are called covenants, conditions and restrictions, also known as CC&Rs. It helps to pay particular attention to the guidelines and the fines associated with not following those rules. Some HOAs may impose penalties for breaking HOA rules and may require a member to either reverse the violation by action or pay a fine. They may foreclose on your property for nonpayment of dues or fines resulting from CC&R violations. It’s important to be aware of the rules before you buy to make sure this is the right neighborhood for you.

Lastly, each HOA has a board of directors elected to enforce and oversee the HOA governing documents, which are governed by state law.

What do HOA fees cover?

In exchange for fees, HOA management will provide services for the upkeep of common areas and building maintenance. Common areas may include parks, tennis courts, elevators and swimming pools. Before making an offer, always ask, “What do HOA fees cover?”

What are the HOA fees for homes?

Investopedia found that HOA fees for homes differ in each community, with an average of around $200 per month. It’s essential to confirm what dues cover and what you’re responsible for paying monthly. Depending on the HOA rules, fees can fluctuate, so be sure to find out how fee increases are set and how often they occur.

What are the HOA fees for condos?

Condo homeowners are primarily responsible for maintaining everything within their units. Membership fees paid to either an HOA or community association cover the upkeep of common areas and building maintenance costs.

Pros and Cons of living in an HOA community

Are you still deciding if a neighborhood with an HOA is right for you? Here’s a review of the benefits and the potential downsides:

Benefits of an HOA

  • Low maintenance: Much of the yard work and landscaping is done by someone the HOA hires, keeping the community looking good and providing you a more low-maintenance lifestyle.
  • More amenities: Many HOA communities include access to recreational activities that the association maintains, from parks and clubhouses to tennis courts and swimming pools.
  • Higher property value: Recent research found that properties that were part of an HOA sold for an average of about 4% more than those that weren’t in an association.

HOA downsides

  • Restrictive guidelines: If you’re the type of homeowner who wants flexibility and control over updating your home’s exterior, an HOA community may not be a good fit. Most HOAs have restrictions on landscaping, paint color and replacement windows. Some may even set rules on updates as minor as holiday decorations. As senior loan officer Carol Flanagan writes, “Some like these restrictions because they require conformity and a crisp feel to the establishment. Others find these restrictions irritating and overwhelming.”
  • Financial obligation: Regardless of how you feel about the rules or how your fees are spent, you’re legally obligated to pay your dues.
  • Less buying power: HOA fees can have an impact on your mortgage loan financing because they’re counted in your debt-to-income ratio.

Guild Mortgage has qualified loan officers standing by to answer your questions and guide you through the homebuying process. Search by your location to find a Guild Mortgage branch near you.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.