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Homeowners Association (HOA): How To Weigh The Pros And Cons Before Buying

Miranda Crace6-minute read
July 01, 2021

Shopping for a home can sometimes feel like alphabet soup – from mortgage terms like “ARM” to house-related shorthand like “FSBO.” Here’s another one you’ll likely come across, especially if you’re buying in a newer development: “HOA.”

HOA is an acronym for “homeowners association,” the governing body that helps keep your neighborhood running smoothly.

If you’re wondering more about HOAs as they relate to your new home purchase, read on to find out what to look for and how the HOA can affect your home value.

What Is A HOA?

When it comes to HOAs, they aren’t all created equally; their goals can vary widely. “I strongly urge anyone considering joining an HOA community to really read through the documents and rules as everyone is different, and generalizations of what an HOA offers and the accompanying rules can cause unwelcome surprises,” says Scott Isacksen of Tci Building Services.

Quite simply, HOAs oversee the rules of the community and help preserve the consistency of the homes and, in most cases, their value. Some neighborhoods might have a “community association” rather than an HOA, which is a voluntary organization that works for the good of the neighborhood by planning events and keeping a home roster, for example. But joining an HOA is mandatory if you’re a member of the community in which it operates.

Homeowners Association Rules

While the process varies by community, HOA rules, also known as CC&Rs (Covenants, Conditions and Restrictions), are typically established when the HOA is formed. They can then be modified by the elected board of directors or through a vote of the member homeowners.

Those guidelines also give information on how often HOA communities have meetings – typically monthly, with one larger annual meeting where members vote on major issues, as well as elect board members. Sometimes homeowners might also choose to join a specific committee to oversee a particular project or item, such as maintenance or parking rules, says Isacksen.

The meeting agenda is typically posted in advance, and then minutes are circulated afterward. If you are a member of an HOA, make sure to find out when your association meets and how you can get involved if that’s important to you.

The CC&Rs will spell out the consequences of violating the rules. For example, the HOA can issue fines if guests park on the street, or you might need to repaint a fence if the color wasn’t approved. The HOA can also charge late fees if dues are not paid on time. These costs end up connected to the property and subsequently taken from sale proceeds if the owner has avoided payment, Isacksen warns.

Pros Of An HOA

There’s no question that belonging to a community that allows for your voice to be regularly heard can come with plenty of emotional and financial benefits.

Community Standard

Most homeowners believe that an HOA is a helpful way to maintain the living standards and uniformity of their community. For example, an HOA typically will govern elements like:

  • What color you can paint your home
  • Where you can park
  • Whether you can rent your home on a short-term basis
  • If animals are allowed, including chickens and other “exotic” animals
  • If you can have boats or RVs parked visibly on your property
  • How tall your fences can be
  • If you have to build a retaining wall so that trash cans are out of sight

Considering the alternative of coordinating with every apartment unit owner in your building to determine who pays for replacing an elevator or other building maintenance costs, paying an HOA fee can be a better deal.

Additional Services

An HOA can also relieve the mental burden of maintaining common areas in good times and bad. Again, every HOA is different, but you can look out for some of these common included services:

  • Communal landscaping
  • Snow removal
  • A pool, playground, gym or other amenities
  • Streets and sidewalks
  • Utilities

Community

As you shop around and compare different HOA CC&Rs, you’ll eventually find a community standard that you like and be among like-minded people. Between monthly meetings and planned events, you’re bound to get more facetime and familiarity with your neighbors. If community is important to you, you may enjoy the benefits of belonging to an HOA.

Cons Of An HOA

The main “con” is usually in the eye of the beholder, especially compared with the autonomy of owning a single-family home. Let’s break it down.

Restrictive Regulations

For example, if you want a purple house or to rent out your home on the weekend or to park your car in the front yard while you tinker with it, an HOA may have laws that don’t allow for those things. In those cases, the rules can seem overbearing.

Renovations Often Require Approval

Another con is that you can’t just make improvements on a whim. “Renovations or updates may need to be approved by an architectural committee prior to beginning the project,” says Isacksen. In fact, if you decide to install a fence with a paint color that hasn’t been approved by the board, you may be required to pay out of pocket to repaint the fence.

That’s why it’s critical to get a full picture of the expectations before buying a home situated in an HOA. Make sure that one of the rules doesn’t conflict with your lifestyle or set you up to make costly changes to your lifestyle.

HOA Fees And Penalties

Of course, another con can often be the HOA fees and penalties. The HOA’s board of directors have a responsibility to their members to enforce community rules. That means they can take legal action ranging from fining homeowners for breaking the rules to even placing a lien on the property.

Poor Management

The HOA board of directors often consists of volunteer homeowners from your community. While one perk of this is being able to live the ideal of self-governance, the downfall is that they may lack the real estate experience to manage both the property and the varying opinions of their neighbors. It’s entirely possible to experience neighborhood-wide tension over a hotly debated issue or financial decision.

HOA Fees: What To Expect

All this service doesn’t come for free. It’s hard to ballpark the costs, since they vary for each HOA, points out Isacksen. He estimates that basic fees can run $200 – $500 a month, with communities that offer more amenities requiring higher fees, sometimes up to $10,000.

Just because the fees are at a certain price when you buy your house doesn’t mean that they necessarily will stay that way, Isacksen cautions. There are two main ways that costs could rise:

Annual HOA Dues

One type of fee increase is in annual dues, which likely will be voted on at member meetings. Isacksen recommends checking the CC&Rs to see if the HOA is limited to a certain percentage increase each year. But conversely, if the dues haven’t been raised in a while, that could be a red flag. “An HOA with no recent fee increase is likely deferring expenditures somewhere and should be more closely scrutinized,” he says.

One-Time Special Assessment

The second type of fee increase is what’s called a “one-time special assessment,” which includes funding for projects that are outside the typical scope and therefore aren’t covered by the annual dues. For example, if the community decides to put in a swimming pool or upgrade the play structure, that might require an assessment. “The state rules governing an HOA determine how much of a fee can be assessed without a membership vote,” says Isacksen.

HOA FAQs

Taking on an extra regular payment should come with questions to ensure financial security. Here’s what we’ve got for answers.

Are HOA Fees Included In A Mortgage?

As for the effect on your mortgage, HOA fees are figured in the cost of ownership to determine what the borrower can afford, just like any other recurring bill you have. Lenders will also vet the standing of the HOA during the loan approval process. Some things that can affect whether it is approved are the funding level, whether there is any litigation in process and the number of rental units (non-owner-occupied) in the community.

Are HOA Fees Tax Deductible?

If you plan to use the property as a primary residence, then you can expect to pay taxes on your HOA payments to property management. That said, you would have to pay taxes on any maintenance or renovations you would make anyway (unless you’re trying to make your home more energy-efficient).

The only way to write off your HOA fees would be if you were renting out the property. In that case, you can claim the payment as a rental property expense. If your property comes with amenities in a prized rental market, it may be worth renting out your first home instead of selling.

The Bottom Line: You Get What You Pay For

Is an HOA for you? In most cases, an HOA is an important factor in keeping a community well-maintained, which can help preserve property values. Before you buy in, make sure that the HOA rules and costs will work for you. Consider making a list of what you’ll get out of the HOA payment and ask yourself if it’s worth it.

HOAs are just one of many factors to think about when it comes to homeownership. Remember, homeowners associations come in all shapes and sizes. If you’d prefer a more moderate level of regulation and fees, you may want to consider a townhouse over a condominium.

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Miranda Crace

The Rocket Homes blog is here to bring you all you need to know about buying, selling and making the most of your home. Whether you’re thinking about becoming a homeowner, selling your current home or looking to keep your place in tip-top shape, our writers and freelancers bring their experience and expertise to meet you right where you are.