A homeowner's association or HOA fee is another expense that some homeowners should be prepared to pay annually in addition to paying their mortgage and property taxes.
Before you purchase a house, townhome or condo, determine whether there is a HOA fee assessed to the homeowners. The fee may be paid annually, such as a few hundred dollars to over $1,000 a year, but also can be higher and paid monthly.
What Are HOA Fees?
Depending on where you live, some neighborhoods or subdivisions charge a monthly or annual fee to share the costs of the upkeep of common areas including parks, swimming pools, community center, parking lots, landscaping and other amenities.
The HOA hires landscapers or a company to maintain the pools, parks, sidewalks or other common areas. The fee can also be used to pay for emergencies such as the roof leaking in a high rise building.
These fees are paid by the owners of the home. If you are a renter, the homeowner is paying the HOA fee.
In a high-rise or condo, the HOA fees are often used to pay for the roof, maintenance of the lobby, employees of the building, air conditioning and heating units and other appliances along with taking care of the landscaping and parking areas.
How Much Are HOA Fees?
The fees can range widely from a nominal fee of several hundred dollars to $1,000 or more annually.
The fees are not related to the age of the home. Typically everyone in the neighborhood or subdivision pays the same amount unless the area is separated by a gate.
The HOA fees could depend on the location of the homes, the number of amenities that are offered such as swimming pools, a community center or gym. The rates typically rise by a percentage each year.
For instance, a home in a suburb of Houston pays $1,200 annually for the maintenance of landscaping, parks, several pools and a gym. A smaller condo building could be much cheaper and only charge $300 a year. A 3-bedroom condo in Oregon charges $150 a month; some places may be $200 to $300 a month.
A real estate agent, builder or neighborhood website can tell you the amount of the fee and when it must be paid.
Each HOA has a reserve fund to ensure there is enough money to pay for maintenance and scheduled repairs along with emergencies. Homeowners can ask to receive the annual financial statement to see what the fees are being used for. Check to see that your HOA has a large enough reserve fund to pay for unplanned expenses that can occur after a natural disaster such as a hurricane, flood, earthquake or wildfire. One that is lacking in enough money for a rainy day will likely seek to increase fees soon, or impose a one-time assessment.
What Do HOA Fees Include?
HOA fees typically include the following:
- Swimming pools
- Fitness center
- Community or meeting center
- Maintenance, trash, cleaning
- Parking lots
- Electricity for buildings and parking lots
- Snow removal
- Gates for a parking lot
- Employees such as guards
Are HOA Fees Mandatory?
HOA fees are mandatory. Depending on how the neighborhood is governed, late payments of the HOA fee are typically subject to penalties and interest.
Some subdivisions allow homeowners to set up a payment plan if they can not pay the entire fee at once. Check the bylaws of the HOA to see if you can pay over a period of several months.
What Happens If You Don't Pay HOA Fees?
Not making payments on an HOA fee can be serious. Determine the consequences of missing a payment by reading the bylaws.
Each HOA has a board which governs the neighborhood and hires the independent contractors who take care of the maintenance of the pool, parks or sidewalks. The board also decides when to raise HOA fees and how to collect them.
Failing to pay HOA fees can lead to consequences such as a lien being put on the title of the home. A lien is an attempt to claim the rights to a property to meet debt obligations.
In some rare circumstances, it can lead to the foreclosure of a property. A foreclosure is a legal action that occurs when the property is sold and the proceeds are used to pay off the remainder the mortgage by a bank or another entity like a HOA.
These consequences are spelled out in the bylaws of the HOA. Discussing them beforehand with a real estate agent or lawyer can resolve any potential issues. Homeowners can also ask to see a copy of the bylaws at any time.
HOA fees are another expense that potential homeowners should plan on paying each year in addition to their mortgage, homeowner's insurance and property taxes. Plan on the HOA fees increasing on a regular basis such as each year to cover inflation or increased costs for maintenance of the building.
The rules set forth by a HOA can also govern the noise level in a building, subletting a condo or townhome, using your home as a business as well as other factors.
A HOA can help boost the value of a home by taking care of the landscaping, parking lots and pools on a regular basis, making it more attractive to a potential homebuyer.