How Homeowners Associations Can Affect Your Long-Term Expenses

Every home comes with extra costs, like property taxes, insurance, and maintenance fees. But when you buy into a condominium, townhouse complex or gated community that’s governed by a homeowners association (HOA), you and other residents are also financially responsible for maintaining the common areas. This additional regular fee is compulsory for all homeowners, and also covers the costs associated with general maintenance, landscaping, and security.

Communities governed by an HOA can be advantageous in that they’re intended to protect the value of properties within the neighborhood and uphold a certain level of integrity. But if you’re not careful, you could wind up having your long-term expenses negatively affected. Of course, if you do the research necessary on the HOA of the community you’re looking into buying, you can do plenty to save yourself a lot of money in the near future.

HOA Basics

What exactly are HOAs all about? Basically, these are organizations in a planned community, condominium, or subdivision that enforces rules for the properties under its authority. The fees that are collected from homeowners are put towards upkeep of common areas like pools, parks, tennis courts and elevators. HOA fees can cost homeowners anywhere from $200 to well over $600 per month, depending on the location and amenities provided. The more well-to-do the building, and the more amenities it has, the higher the HOA fees.

HOAs can also enforce certain restrictions on the properties, which can include anything from the type of landscaping that can be done to the color of the front door. If you want to do anything different than what the rules state, you’ll have to convince the HOA to give you a variance, which is unlikely to happen.

HOA Fees Could Increase if Reserves Are Depleted

Just about every neighborhood will eventually have a lot of expenditures related to maintaining the integrity of the properties. An HOA should have the funds necessary to pay for these items by accumulating reserves. However, there may be times when the scope of the project could require additional money.

Sometimes a reserve fund might not even exist. Special assessments are additional funds needed to work on a project or outstanding debt that wasn’t part of the initial budgeted HOA fee. And if these are needed, this could place an unexpected financial burden on you and the rest of the homeowners in your HOA complex.

If a new roof or a major elevator repair is necessary, and there’s not enough money in the reserve fund, an extra assessment could be charged to homeowners to pay for these expenses, which can cost thousands of dollars.

Buyers Must Understand the Need to Comply With Rules of the HOA When Moving In

The covenants, constrictions, and restrictions that come along with owning an HOA-governed property are initially intended to serve the community. However, many times they can be overly restrictive to some home buyers. There are plenty of limitations that could infringe on a person’s lifestyle, such as those that dictate the type of improvements you can make on your home and even whether or not you are allowed to own any pets.

While these might sound outright prohibitive, these rules are meant to protect the values of properties for individual homeowners in the neighborhood and create a nice community environment. Before you buy a home that’s subject to HOA rules and costs, you’d be well advised to find out exactly what you’re in for.

Pay special attention to the fines for not complying with these rules: certain HOAs can put you into foreclosure as a result of non-payment of accrued fines from violation of covenants, conditions, and restrictions. If you think the rules are far too restrictive for your taste, consider buying elsewhere.

Look Into How the HOA is Governed and its Financial Health

Every individual HOA will govern its communities in a different way. While it’s common for the association to be made up of building residents who’s positions are voluntary in nature, it’s also common for other complexes to hire on-site managers. No matter how the HOA is governed, it’s important to research how well the HOA is run, and what the health of the complex you may be looking into is like.

A real estate agent experienced in HOAs will be able to educate you on the terms of the HOA and compare fees for the complex you’re considering. Appropriate monthly HOA fees should comfortably cover regular monthly operating costs, as well as contribute to a reserve fund. If there’s not enough in these reserve funds, you could be facing much higher fees in the future if a major repair needs to take place.

An excellent real estate agent with plenty of experience will be able to arm you with all of the info you need to make the right decision. While there could be detriments to your finances as a result of a bad HOA, owning an HOA-governed home definitely can have its perks. Making sure that it makes sense financially and fits your specific lifestyle is critical. If you’re working with a Realtor, making the best decision will be a cinch.