Homeowners Associations (HOAs): Everything You Need To Know

Kevin GrahamAugust 14, 2019

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.

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 every one is different, and generalizations of what an HOA offers and the accompanying rules can cause unwelcome surprises,” says Scott Isacksen of Tci Building Services.

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 An HOA?

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 are a member of the community in which it operates.

How HOAs Work: Rules And Guidelines

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, and then they can 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 HOAs

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” or trendy pets
  • 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

HOAs also often take care of common areas, including:

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

Cons Of HOAs

The main “con” is usually in the eye of the beholder. 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. That’s why it’s critical to get a full picture of the expectations before buying a home situated in an HOA, so you can make sure that one of the rules doesn’t conflict with your lifestyle.

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.

And, of course, another con can often be the HOA fees.

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.

But 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 will rise. 

Annual 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.

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. And, a lender 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.

The Bottom Line

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. But before you buy in, make sure that the HOA rules and costs will work for you.

HOAs are just one of many factors to think about when it comes to homeownership. For even more on maintaining your home’s value and doing creative things in and around the home, check out our homeowner tips!

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    Kevin Graham

    Kevin Graham is a Senior Blog Writer for Quicken Loans. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Quicken Loans, he freelanced for various newspapers in the Metro Detroit area.