Too many people fail to pay attention to the impact HOA fees have on homeownership. HOAs are serious about collecting the fees owed to them. When fees are unpaid, it can have devastating consequences for current homeowners and people looking to buy another home who left unpaid fees behind at a previous community. However, HOA fees are not necessarily bad, they also add value to the community by helping improve livability and home values.
According to the Community Association Institute, HOAs and property management companies collect over $70 billion in HOA payments annually in support of more than 333,000 community associations. The Foundation for Community Association Research says that people living in HOA communities have grown from a mere 1% in 1970 to 25% today. And Realtor.com finds that for a typical single-family home, HOA fees cost homeowners around $200 to $300 per month. The individual monthly fees vary greatly and tend to be highest among condominium owners who need to maintain expensive features like elevators and communities with expensive amenities like swimming pools, golf courses, and tennis courts. Those that only maintain common areas and landscaping tend to be less costly.
If the houses that you are considering buying are in an HOA, you need to include the HOA fees in your budget forecasting. Your mortgage company certainly will consider these fees along with property taxes and homeowner’s insurance. A lender won’t approve your loan unless they feel you can afford all of these monthly and annual expenses.
Whether or not your HOA fee is escrowed as part of your mortgage payment or is your independent responsibility, you need to understand the cost and impact before purchasing a home in an HOA community. Failing to pay HOA fees can dramatically affect your ability to own a home in several ways. According to the National Association of Realtors®, in 2016 HOA payments and account status began being reported to the three big credit bureaus.
If you are only delinquent on your payments, it is up to the policy of your specific HOA if the late payments are recorded against your credit score. However, if your HOA places a lien against your property at the county clerk’s office, it not only goes against your credit score but also becomes a public record and clouds the title to your home. Should you try selling your home, the lien will appear on the title report. All of this affects your overall credit score in addition to your ability to sell your current home.
Maybe the credit report impact is a good thing and maybe not. These are people that have already qualified for a home mortgage. However, a low credit rating for delinquent HOA payments could make it impossible for these people to move up the homeownership ladder (unable to qualify for a larger mortgage). Before you get in that situation or when looking at homes with HOAs consider these factors:
A lot more should be known and considered before buying into an HOA governed community. For instance, how are voting rights assigned? In a community still under development, the developer probably has majority control of the lots and votes. This can make it possible for the developer to making sweeping changes to the rules and fees regardless of what the early homebuyers want or anticipated.
Beyond the fees, each HOA creates its own covenants, conditions, and restrictions (CC&Rs). These affect how you can use your property as well as the common areas. Possibly everything from whether you can have a flag pole, build a fence, where you can park your vehicles, how many guests are allowed at the pool, and much more.
Joining the HOA is a requirement, not an option. Before buying, you need to know about current fees and CC&Rs, the history, and plans for the future. These will affect your current lifestyle and possibly your future ability to buy another home.
What do you advise homebuyers about HOAs? Please leave a comment.
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