The Complete Guide to Buying a Home with an HOA

A homeowners association, or HOA, is a fairly common organization in neighborhoods across the country. They're typically formed by the real estate developer to help them sell and manage homes in the subdivision that they're building in and the developer usually transfers ownership of the organization to the homeowners after they're done selling all the lots in the neighborhood. 

If you're buying a home in a neighborhood with an HOA, joining the association is most likely mandatory--and so is obeying any rules that they association has or puts into place in the future, which is one reason many people dislike HOAs. For many others, the benefits of an HOA outweigh the negatives. These organizations typically help keep the property values up in the neighborhood by enforcing rules about home upgrades, the look of the outside of the house, and how they're maintained. The associations also usually provide some sort of common good for the community as well. Think pools, tennis courts, or walking trails. 

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So, how do you know if buying a home with an HOA is right for you?

Ask the Right Questions

Homeowners associations sometimes get a bad rap as being too restricting. If you know what to expect, you won't be taken by surprise when you want to paint your house and the HOA says you can't. The first thing you need to do is ask yourself what's important to you. 

  1. What amenities (like a pool or tennis courts) are important have in my neighborhood?
  2. How much am I willing to pay for them and does having them in the neighborhood justify a higher cost?
  3. How do I feel about potentially being told I can't make certain changes to my house?
  4. Do I want there to be someone in the neighborhood responsible for making sure everyone follows the rules?

Once you know what's important to you,  you'll want to ask if those same things are important to your potential HOA. 

  1. What are the bylaws and covenants?
    Homeowners associations (HOA) can have rules for everything from whether or not you can fly a flag to what color you can paint your house. Ask to read over the rules to make sure you’re comfortable with them. The rules might be great to keep your neighbors from building an eyesore of an addition. But you might not be too happy with them when you find out you can’t set up a basketball hoop for your kids to practice their jump shots, or you can't display your favorite garden gnome in the front yard. And that pergola? Your HOA could foil your plans.

  2. What are the monthly fees and what do they cover?
    Remember, your monthly HOA fees are not optional. So think of them as part of your mortgage. You should also ask how easy it is for the board to increase the fees and how often it happens. If they’re too high, or going to go up soon, that might end up being more house than you can afford. Your community might have a pool and a golf course, but double check that your fees give you access. And if your fees mean the HOA takes care of the roof on your condo, you don’t want to find that out after you’ve already paid a roofer. Make sure you know exactly what you’re responsible for and what’s covered.

  3. Is it well-funded?
    Your HOA should have a financial reserve account that it can use to maintain everything it’s responsible for. If that account’s not well-funded, you might find your common areas falling apart and repairs on the building (if you’re in a condo) not happening. If that’s the case, your board might be a lot quicker to collect fines from you instead of giving you a warning.

  4. Who’s on the board?
    If you love things done with military precision, having a board that’s a stickler for rules might be right up your alley. But if you’d rather let a lot of little things slide, you’re probably going to find yourself in a lot of trouble if you have a drill sergeant on the HOA board.

So, can you take it? How are you with authority? An HOA could be the best thing that ever happened to you if you like rules -- and theirs are reasonable -- and you don't like having to enforce them yourself. But you might want to ask about your garden gnome collection before you sign on the dotted line.

Take a closer look at the reserve fund

Your reserve fund can be an incredibly important part of your HOA and it's part of the reason you pay fees. The fund will help ensure your neighborhood can make any repairs to common areas. You should think of it like a savings account or emergency fund for the neighborhood.

How much should be in the reserve fund? 

Your HOA should have a reserve study that tells them how much money they’ll need to make certain repairs and when they can expect to make those repairs. So, if they know the building will need a new roof in 20 years and that the roof will cost $200,000, then each year they need to collect $10,000 in fees from the residents to pay for it. You'll pay your portion of the reserve fund each month plus whatever else the neighborhood needs to keep up with services like pool and yard maintenance. 

What if the reserve isn’t fully funded?

Let’s say your board members are being super nice people and not raising fees to fund the reserve. Since the fees are an additional expense on top of your mortgage, that might sound pretty good. Well, that money still  has to come from somewhere. Neighborhoods that don’t charge enough in fees to keep their reserve funded usually have a sudden, sharp increase in fees or they levy special assessments to pay for major repairs. Or worse. They ignore the repair. And leaky roofs and plummeting home values aren’t good for anyone.

Know before you buy.

Before you buy your home, you have the right to ask to see the HOA’s finances. If budgets and accounting isn’t really your thing, ask someone else to take a look at them and see if the association is managing its money properly. Don't be afraid to ask your potential new neighbors what they think of the HOA and how it's run. 

Know how can you make a change

Once you've been living in the neighborhood for awhile, there might be some changes or improvements you'd like to see happen. One of the nice things about an HOA is that anyone in the neighborhood can run for the board, which means you can potentially help influence the direction of your neighborhood. Before you jump into it, you should know it's a lot of work--and being on the board doesn't mean you'll get all the things you want for your neighborhood. Here's what you should consider before you start campaigning. 

  1. Why do you want to run? Being on the board means you’ll be working with other people to help solve your community’s problems. So if your goal is to get elected so you can immediately raise fees, outlaw puppies, and enforce strict 6:00 curfew for being on the street, you’re probably going to have a tough time convincing everyone else.
  2. Do you have the time? There are the meetings, but there are also other time commitments associated with whatever job you have on the board. You might need to deal with vendors, like a landscaping service or a pool cleaner. Or you might have to be available to answer questions from your neighbors. Make sure you can handle the commitment on top of everything else you have to do.
  3. Do you know the rules? Your neighbors will be counting on you to understand--and enforce--every rule. So you need to make sure you know them like the back of your hand. You’ll also need to have a good understanding of the reserve fund (if you have one) and whether it not it’s enough.  Your neighbors--and potential new neighbors--are going to want to know.
  4. Are you prepared to be disliked? No one likes a rule enforcer. But when you’re on the board, you’ll have to do just that. When that sweet, older lady keeps refusing to clean up after her dog and the young parents down the street put in an illegal pool, you’re the one who has to tell them there are consequences. And they’re not going to like it. The trade off is you’re protecting your other neighbors from low property value (or just ruining their shoes). And while it might not be as simple as saying “no”, you might have a neighbor who tries to overturn the HOA ruling.
  5. Are you in good standing with the association? You’ve seen political campaigns. Candidates’ dirty laundry is definitely on display. Okay, okay, so you probably won't be scrutinized too much. but they are going to care if you owe fees and fines or if you constantly break the rules--even if they think they rules need to be changed.

Ready to start campaigning? You're just a catchy slogan away from being able to make a difference in your neighborhood!