So you want to purchase a home in a community with a homeowners’ association. Many homebuyers love the idea of enforced community appearance, included maintenance like snow removal, recreational amenities, and association management, but here are a few things you should consider when planning to purchase a home within an HOA.
Understand Before Signing On
First off, a homeowners’ association is an organization that manages and upholds the rules, known as covenants, of a housing development, subdivision or condominium building, as well as distributes HOA fees to appropriate upkeep projects.
During the homebuying process, you'll be signing a lot of documents but make sure you fully understand the covenants, conditions and restrictions of your HOA before placing your name on that dotted line.
HOA agreements can cover a pretty wide spectrum of conditions, so you'll want to double-check what affect those might have on your day-to-day life. For instance, maybe your HOA limits the amount of pets a homeowner has or restricts homeowners from putting up fences or swing sets.
There are several benefits of an HOA, but remember that when buying a home within an HOA, you're also buying into a certain lifestyle. Make sure it's a good fit before signing off on it.
Understand Your Costs and Where the Money Goes
Your monthly fees generally go toward the cost of upkeep in common areas, buildings and amenities. Generally, HOA fees are distributed into two divisions:
- Current year operations - fees designated to cover items such as landscaping, snow removal, pool maintenance, insurance and water.
- Reserves - the remaining portion of monthly fees are placed into a reserve account to cover long-term, larger-cost repairs and replacements like a new roof for a common building.
In addition to your monthly HOA fees, if a major expense arises and there aren't enough funds in the HOA's reserves to cover the expense, your HOA may charge an extra fee. HOA fees are always subject to change, so be aware.
Find Out How to Get Involved
Get a clear understanding of how you can get involved with the rule-making and budgeting process in your prospective HOA. HOA's are a democracy, not a dictatorship. If you come to find a covenant, condition or restriction that you feel is unnecessary, you'll want to know what your options are going forward.
Research the Hot Topics in Your Prospective HOA
Though it's nearly impossible to keep every homeowner in a community happy, you'll want to make sure you're not buying into a community with unhappy neighbors. Ask for a copy of the minutes from the most recent HOA meeting to get a feel for what your potential neighbors and HOA care about in the community and what's up for discussion.
An HOA works best when there is full and active participation from everyone in the community, but homeowners’ associations aren't for every homeowner. Make sure it's right for you and your family's lifestyle before buying.
For more information about home buying and financing, download our free Mortgage 101 Handbook, a great resource for first-time and repeat homebuyers.