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What is an HOA?
A body within a community that sets the rules for properties in its dominion and imposes them is called a homeowners association or HOA.
Doesn’t matter whether you live in a single-family home, condominium or townhouse, if you have shared spaces or amenities like a swimming pool, tennis court, and security gates, then those common areas are most likely maintained by an HOA or condo association.
A board consisting of property owners who are elected by other property owners in the community are the people who usually run the HOA.
What are HOA fees?
HOA fees are regular fees charged usually monthly or quarterly estimated by the homeowners association to pay for the services that are rendered by them.
You may pay a similar fee to your condo association if you live in a condo.
It is important to understand how HOA fees work if you plan to buy a home in an HOA. The money that an HOA collects is used to help maintain or improve the quality of life in the community.
These fees need to be paid on top of your mortgage, property tax, and homeowners insurance payments. You’ll have to continue paying HOA fees even if your mortgage is paid off.
What do HOA fees cover?
HOA fees cover a variety of things depending on the amenities available in your community.
Though your HOA’s governing documents will outline what all fees are covered specifically, some of them are:
- Grounds maintenance and landscaping
- Pool maintenance
- Snow removal
- Trash removal
- Electricity and other utilities for common areas
- Fire alarm systems
- Gate security guard
- Pest control for common areas
Depending on the number of services your HOA provides, the HOA dues will keep getting higher.
In general, the HOA rule’s intention is to make sure that each home is visually appealing and in good repair, so that the property values can be maintained, and the community remains safe for all residents to enjoy.
So HOA dues also pay for enforcement of HOA rules.
How much are HOA fees?
Nationally, for a single-family home, the average HOA fee is between $200 and $300. HOA fees range may vary depending on the location of your property and the facilities available to property owners.
The HOA board decides on the amount to charge property owners for covering the community’s expenses.
For instance, for an oceanfront condo in Florida which is filled with amenities, the owner might pay the HOA fees of $1,000 a month, while in the case of a moderate gated community that is in the interiors of the main city the owner might pay only $150 a month.
Larger residences pay more in HOA than smaller ones, because it is presumed that they use more services.
For instance, In a large, single-family home it costs more to cut the grass compared to the one at a one-bedroom unit.
Unexpected HOA fees
Usually, the HOA fees remain the same, however, the community’s board can also authorize what’s known as a special assessment.
Special assessments are usually charged to cover the cost of major unforeseen work, like repairing damage to common areas after a natural disaster or refinishing a building’s facade, which is periodically required in some cities like New York.
These special assessments also help to build up the community’s reserve fund, which is like the HOA’s rainy day account.
This money is in reserve to help take care of a much larger special assessment in the event of major required work.
On top of your regular dues, the assessments can be a one-time charge or ongoing fees.
HOA board has the freedom to institute assessments, and they don’t need to poll or notify the residents before they do however usually passing a resolution and notifying the community is a general practice.
Are HOA fees tax-deductible?
IRS regulations can be a little complex, but in general, if the property you own in the community is your primary residence then HOA fees are not deductible.
But if you rent it out, as a rental expense your HOA dues may be deductible. What is not deductible are the HOA special assessments.
What if you are unable to pay your HOA fees?
The board or management company may design a payment plan for you if you’re unable and struggling to pay your HOA dues.
Be upfront about your financial situation with the board early on so you can be accommodated because if you’re in arrears for too long or your debt is insurmountable then the HOA has the power to have you evicted, and hypothecation could be placed against your deed to help the community recover the losses it has incurred.
Things to consider before you buy in an HOA
If you’re buying a property in a homeowners association, then the HOA fees amount should be readily available.
It is usually included in the real estate listing.
Try to access, minutes of past HOA meetings and other records through your real estate agent or the HOA, so you are aware of the fee changes and any rules that relate to fees.
Look out for answers to the following queries about HOA:
- The frequency of fees increase in the HOA in recent years?
- What all services do these fees cover? and what services are not covered?
- Do the HOA reserve funds for long-term repairs and maintenance, and what would be the amount?
- Does HOA have experts studying the reserve estimates?
- Does the HOA charge for special assessments? how much were they, what were they used for, and the frequency it occurs?
These questions will give you a fair idea if the HOA has enough cash on hand for significant expenses, and if not then it would mean that either HOA fees would rise and you will be charged extra special assessments.
Conclusion
While you are evaluating the short- and long-term costs of buying a home, learning about HOA fees will help you make a more informed decision.
To avoid high unexpected assessments be sure that HOA has planned well for the future and has enough money for future costs.
When you look at all the aspects you will learn that sometimes a property that looks affordable is actually out of reach, or you might conclude that it’s a perfect fit for your finances.
