What is an HOA and How does it Work?

What Is an HOA?

HOA stands for homeowners association. It’s an organization made up of people who own homes in the same community, like a condo, townhouse or planned development—which is basically a fancy subdivision with extra features like a shared swimming pool and landscaping services.

The HOA helps manage the community, and it collects monthly fees to pay for shared amenities. (More on that in a minute.)

9. Insurance Responsibilities

As with the ownership of property, insurance provisions within a planned development can be divided, too, with the HOA covering some perils or areas and the homeowner responsible for others.

These are often mandated by state law. In Florida, for example, a condominium HOA must insure all common property, which includes every part of the building up to a unit's unfinished drywall. Meanwhile, the homeowner is responsible for insuring all personal property within their unit, including appliances, flooring, cabinetry, window treatments, and the like.

Check the law for the state you'll be living in to for the precise division of requirements. Confirm the HOA for the property you’re considering is adhering to those requirements.

Catastrophe insurance is particularly important if you’re considering a condo or townhouse purchase in an area prone to major natural disasters, such as floods, earthquakes, blizzards, wildfires, tornadoes, or hurricanes. “In the Pacific Northwest, earthquake insurance is very common [in planned developments], though not required,” says Manning.

Check whether the HOA provides additional coverage as a perk for owning within the development. “[A] forward-thinking HOA can make a condo building more attractive” in this way, says Manning. They might add “earthquake and other types of hazard insurance, [which] will be reflected in the homeowner’s HOA dues.” You should, of course, confirm if such additional coverage also extends to the areas that are the homeowner’s legal responsibility, or only to those under the HOA’s purview.

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What Do They Do?

Homeowners’ Associations (or Condo Associations) set a monthly or annual condo fee or homeowner fee, which is used to maintain the property and its common areas, such as the hallways, walkways, and parking lot (for condos) and parks, swimming pools, etc. for residential communities. The board may hire a property manager to help with day-to-day operations.

While each association’s duties may vary with the type of property, some HOA responsibilities include the following:

Rules

  • Set and approve covenants, conditions, rules, and bylaws (e.g. acceptable/non-acceptable resident behavior)
  • Review complaints and make decisions about resident concerns
  • Enforce penalties against residents if they breach the bylaws (fines, etc.)
  • Appoint committees and delegate to them

Meetings

  • Hold meetings for members, determine voting matters, vote on issues, etc.
  • Hold meetings for the board of directors
  • Communicate with homeowners, property managers, and other personnel

Finances

  • Set budget with input from owners
  • Keep financial records
  • Sets condo/homeowner fees. Price is determined by financial projections.
  • Maintain a reserve of funds
  • Hire and correspond with an attorney, accountant, and other professionals for the association
  • Allocate spending for insurance coverage

Maintenance

  • Budget for repairs and maintenance
  • Organize and prioritize maintenance and upkeep
  • Collect bids from contractors
  • Arrange for inspections
  • Respond to emergencies

The HOA members and board of directors have a fiduciary duty to the corporation, which requires that members act in good faith, with skill and care, on behalf of the association.

Examples of homeowners association rules

Rules vary by HOA, and they can limit members’ ability to exercise a wide range of their rights as homeowners. Good HOA rules protect you and your property. Before you agree to join an HOA, make certain you agree with and understand all its rules. Make sure you read the rules and regulations of the HOA before purchasing a house in an HOA community and before signing the HOA membership form. This is a legal document, remember, so don’t take it lightly like you do those agreements you’re supposed to read when you install mobile apps. Breaking an HOA’s rules could have serious consequences, so make sure you know the rules before you agree to them.

Concerning those end-user license agreements (EULAs) you don’t bother reading when you install apps on your phone, you might want to think twice. For one day in 2013, as an Arthur W. Page Center article relates, UK-based company Gamestation’ EULAs had users agreeing to surrender their immortal souls. Since the digital agreements could not be signed in blood, most occult experts agree that they were unenforceable. But the episode does highlight the danger of signing agreements you haven’t read.

Below is a list of some examples of HOA rules that you might find:

  • Landscaping choices: You should expect some sort of restrictions as to what you can and cannot do with your landscaping. Your HOA may have a list of approved and not approved plants and trees, and expectations for what your landscape looks like.
  • External decor: Your HOA may have specific guidelines for the color of your house, front door, and roof shingles. Before changing any of these, you will likely have to confirm your choice with your HOA.
  • Outdoor structures: HOAs commonly have rules for all of the following: what fencing types you can have and how tall your fencing can be, which outdoor structures like decks or pools are allowed, the home maintenance standards you must satisfy, and what holiday lighting you may use.
  • Parking: Many HOAs regulate the number of vehicles that can park on your property or your street. Often, you will have to follow these limits or request permission from your HOA for a temporary car park. You may also find bans on recreational vehicles, boats, lawn equipment, and unattended bicycles outside of your house.
  • Other regulations: Other potential restrictions could be related to pets, occupancy, renting bans, subletting bans, and acceptable noise criteria.

If you already own a home and need extra funds to cover the cost of things your HOA doesn’t take care of, or if you don’t have an HOA to handle something you want fixed, maybe it’s time to dip into your home’s equity.

6. Conflict Management

As in any community, disagreements arise within a planned development, sometimes over certain residents bending or breaking the rules. Before you buy, explore how rules are set and enforced and what penalties are imposed against rule-breakers.

Sanctions can be strict.In some HOAs, the outcomes may include being fined or sued or having the HOA place a lien on your home. Pay particular attention to whether the HOA can foreclose on your property for nonpayment of HOA dues or nonpayment of fines resulting from CC&R violations.

Ask about the process for resolving any conflicts, as well as how the HOA manages additions to or amending the rules. 

Request a list or other accounting of conflicts and rule violations the association has had to resolve. If that information doesn’t detail lawsuits, ask about those. Be sure to check for any past, present, or pending lawsuits in which the HOA is involved. Also, review the outcome of any such cases.

Are HOAs Worth It?

Since you’re more and more likely to come across an HOA while house shopping, let’s cover the pros and cons so you can decide if living in a community with an HOA is right for you.

Pros

  • Possible increased home value. Many people in favor of HOAs believe they help increase your property value by a few percentage points. But the data’s mixed on whether that’s true or not. You’ll need to do your own research to see which HOAs in your area have actually upped property values.
  • Pleasant appearance. HOAs help keep shared spaces neat so you get to enjoy a well-maintained neighborhood at all times. And there’s something to be said for coming home to a beautiful community every day—it just makes you feel good.
  • Amenities. HOAs offer great amenities—from gyms and swimming pools to security and snow removal. It can be well worth the cost of HOA fees to have so much maintenance done for you or to have fun features so close to home.

Cons

  • Membership dues. HOA fees can be an expensive addition to your housing budget—especially on top of a mortgage. Plus, your fees can go up pretty much whenever the HOA board decides it’s time for a price hike.
  • Extra fees. If your HOA doesn’t have enough money on reserve to handle major maintenance projects and upgrades, you can be hit with special assessments that require you to cough up even more money. Ugh!
  • Restrictions and lack of privacy. Let’s get a quick show of hands: Who actually likes being told what to do? Most of us want to be treated like adults—and that includes maintaining our property the way we want. With an HOA, someone is telling you what to do . . . and you’re payingthem to do it!
  • Sticklers. Just about every HOA has that one person who makes it their business to get all up in your business. They’ll complain about your curtains, the color of your mailbox and how many guests you entertain. That kind of attitude can ruin your relationships with your neighbors. And no matter how beautiful a community looks, it isn’t much of a community if you’re on bad terms with the people who live there.
  • Your home is at risk. Plain and simple, if you live in an HOA that has the right to foreclose, you run the risk that you could lose your house if you can’t cough up the HOA fees on time or if you get sick of playing by someone else’s rules. That’s a tough pill to swallow.

So . . . Should You Live Someplace With an HOA?

HOAs have some great perks, but they’re not for everyone! Here are some signs you shouldn’t buy property in an HOA:

  • You hate being told what to do.
  • You do things most HOAs won’t approve of (like working on cars in the driveway or letting your lawn get shaggy before you mow it).
  • You want your home to look unique on the outside.
  • You enjoy privacy.
  • You don’t want to pay the HOA fees (especially after your mortgage is paid off).
  • You want to own your home with no strings attached.

On the flip side, you may love living in an HOA if:

  • You’ll actually use the amenities and services your community offers—and you’re willing to pay a little extra to get them.
  • You have a high tolerance for rules and regulations.
  • You really like order and uniformity.
  • Your HOA has a proven track record of increasing property values, and you plan to sell in a few years.

All of that to say, whether you should live in an HOA depends on your preferences. And it depends on how the HOA is run. A well-organized, well-run HOA can make for a great experience living in your neighborhood. A crummy one can make you want to sell your house tomorrow.

If you think you might like to live in an HOA (or at least wouldn’t mind it), be sure to learn more about the specific HOAs where you might buy a home.

Look up the HOA’s rules, talk to the HOA representative, and even ask around the community to find out what other people think about the HOA. Learn as much as you can about how the HOA runs and how much it costs because—once you buy—you’re stuck with the HOA until you decide to move.

Key takeaways

  • If you purchase a home that is part of an HOA, you will be responsible for following its particular rules and regulations and paying monthly or annual dues. HOAs then use your fees to maintain the appearance of the community and to protect your property’s value.
  • An HOA is managed by a board of directors. The board is often voted upon by the community, and its members are often selected from among the community’s residents. This board of directors manages the finances and enforces the rules.
  • You should ask for the HOA’s bylaws before purchasing a home that is part of an HOA community. These bylaws will list the rules and regulations. They also designate which aspects of property maintenance are the responsibility of the association and which are the responsibility of the homeowner.

Are HOA Fees Tax Deductible?

No, HOA fees are not tax deductible if the property is your primary residence. However, if you purchased the home as a rental property, you can deduct HOA fees because they’re considered a rental expense. If it’s a rental property that you inhabit for a portion of the year, you can still deduct the fees, but only for the time frame that the property was rented out.

If you find the cost of your HOA fees to be burdensome, your best option may be to join the HOA board yourself and start looking for areas of the budget where the HOA may be overpaying for certain services.

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How much do I have to pay for an HOA?

HOAs collect fees to cover the cost of maintaining amenities and community areas. Most HOAs keep an additional reserve of funds, which the organization can use for major construction or renovation projects in the community.

The amount you pay depends on your HOA, as each association sets its own rates. The HOA’s board of directors typically sets fees and can charge on set schedule such as a monthly, quarterly or even annual basis. The board of directors collects the fees and distributes the funds as necessary.

Can HOA fees change?

HOA fees can increase or decrease over time. In most cases, the board of directors reviews the community’s needs, the total of the current fees and the size of the reserve fund to decide whether to raise or lower fees.

The HOA’s CC&R may outline rules for how much the fees can change each year. Read over the CC&R to make sure you understand how much you may have to spend on HOA fees. In addition to your regular HOA fees, there may be additional assessments from time to time to cover special projects or deficits.

Do you have a say in your HOA fees?

HOAs are typically required by their CC&Rs to hold meetings throughout the year. At these meetings, board members and homeowners discuss the state of the community, upcoming changes and budget issues.

In many cases, homeowners provide input or vote on HOA fees and other policies. Check the CC&R to learn how much input you have as a homeowner.

What Are the Benefits of a Homeowners Association?

The mission of an HOA is to invest in the community, provide amenities, and maintain the appearance and curb appeal of the neighborhood. This often includes caring for the external aspects of your home, including your front yard landscaping or cleaning and painting your home’s exterior.

Plus, if you’ve ever had to live near challenging neighbors, you will appreciate having a referee that can manage neighbors who fail to keep up their property or make noise late at night.

Most significantly, an HOA brings neighbors together through shared interests and organized social events.

Is an HOA right for you?

To decide if an HOA is right for you, consider the following:

  • HOA dues will add costs to your monthly obligations
  • The dues will hurt your maximum loan amount
  • Are the benefits of the HOA worth the extra cost and lower loan amount?
  • Do the HOA’s rules fit in with your lifestyle as a pet owner, gardener, or outdoor enthusiast?

Before you decide to purchase the home, thoroughly read the HOA’s CC&Rs. Meet with members of the board of directors to get a better feel for the community and its goals and objectives to ensure they line up with your own.

The Bottom Line: Determine Whether An HOA Suits Your Lifestyle

Having an HOA can be a boon to a homeowner, making your neighborhood more livable and enhancing your property value. Make sure you’re well-informed about what your fees include and how you can interact with the HOA board if you have questions or concerns. Deciding whether a property with an HOA is right for you is just one of many decisions you’ll make on your buying journey.

Before you begin shopping for homes in an HOA community, it’s also wise to pursue Verified Approval. When you’re ready to make an offer on a home, having a solidified financial backing and acknowledgement of your trustworthiness as a buyer provided by a reputable lender can make all the difference in getting a seller to accept your purchasing terms.

Have more questions about real estate and mortgages? Stay in close contact with your real estate agent, and take the time to look through the many resources that Rocket Mortgage offers in our Learning Center.

Pros and cons of HOA life

Some homeowners love living in an HOA community. Others may find the rules to be too restrictive and cumbersome. Here’s a list of pros and cons to help you decide.

Pros

  • Your neighborhood will be neat and well-maintained, with minimal effort on your end.
  • Your property value will likely benefit from more stability due to rules governing the maintenance and appearance of homes.
  • You might gain access to exclusive amenities like a swimming pool, playground, clubhouse, gym or on-site security. You may also have opportunities to meet and socialize with your neighbors through HOA-sponsored events.
  • An HOA board will hear and mediate disputes between neighbors for property-related issues that violate the rules (for example, barking dogs, trashed yards or fence disputes).

Cons

  • HOAs typically have a lot of power over how you can maintain and live in your home. You might be limited to certain design schemes or paint colors, or even the number of and type of pets you are permitted to have.
  • HOA fees can stretch your monthly housing budget, especially if home prices are already steep in your area.
  • Some HOAs can be aggressive about sending violation notices for the slightest infractions.

A note about HOA rules

While all HOAs have rules, some are far more restrictive than others. For example, many will require you to get prior approval for home additions or a new roof. Others might prohibit you from renting out your home. Some HOAs may even restrict the number of plants you can have in your front yard, or the height of mailboxes or playground equipment. In the most extreme cases, a homeowner can be fined or have a lien put on their home for repeatedly failing to comply with rules or falling behind on HOA payments.

Final Thoughts

Understanding the HOA’s meaning and asking questions helps ensure you choose the right home in a neighborhood that will best fit your lifestyle, whether the home is in an HOA or not.

Lean on your real estate agent for details and have your pre-approval ready so you can make an offer as soon as you decide that a home is right for you.

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