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What is an HOA?

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HOA stands for homeowners association, and is an organization that makes and enforces rules to maintain a neighborhood, subdivision or building. Members of the HOA pay a fee in exchange for the HOA to maintain common areas, establish rules and sometimes provide amenities.

How does an HOA work?

Homeowner associations, including condo associations, are typically run by a board of directors who are resident homeowners elected by the community. HOAs are governed by a set of bylaws that spell out the rules for homeowners who live in the community. As a homeowner living in an HOA, you can elect board members and can ask for rules to be reviewed and amended. Depending on the type of HOA you live in, you have control over what is inside your home, but the HOA will govern exterior maintenance and changes.

HOAs have the legal right to raise fees, charge a special assessment and enforce rules. Depending on state laws, HOAs have the right to suspend use of common areas and to take residents to court if necessary for violating rules or not paying HOA fees.

HOA rules and services

The main functions of an HOA are to manage the community, provide services for residents and enforce rules.

Maintenance services. HOAs typically handle trash removal, lawn care and other landscaping in common areas of a development. While services vary from one HOA to another, many repair common areas such as a condo building roof, fences and communal streets.

Insurance policies. HOAs usually have insurance to cover liability and repairs for common areas, which could mean that residents pay less for their insurance policies on their residence.

Amenities. In some communities, HOAs include amenities exclusive to residents such as a clubhouse, a swimming pool, a fitness center or a coworking area. Those amenities can increase HOA fees.

Establishing community rules. Residents who live in a homeowners association must agree to abide by the community’s rules, which can include whether pets are allowed, whether you can park an RV on your property and what type of home business you can run. In some communities, HOAs set requirements for homeowner maintenance such as how high the grass can be or the exterior color scheme so the community continues to look cohesive. Some also limit your ability to rent your home to short-term and long-term tenants.

Types of HOAs

More than one quarter (26%) of Americans live in some type of HOA community, according to the Foundation for Community Association Research. Common HOA terms include:

  • HOA. An HOA includes a volunteer board elected by owners who pay fees to have common areas maintained and repaired. An HOA will also establish and enforce rules.
  • Condominium association. A condo association has a board elected by owners who will manage the community rules and common elements that include the building exterior. Monthly fees are charged for maintenance and services.
  • Cooperative association. Co-op members own shares of the building and pay a monthly fee for maintenance and services. The association owns the building and pays property taxes.
  • Townhouse owners association. Homeowners are responsible for their own homes and the association collects fees to pay for common area maintenance and services such as trash collection.
  • Master association. A master association is an umbrella association over multiple subdivisions and neighborhoods that manages common amenities such as streets and recreational amenities.
  • Civic association. A voluntary organization of neighbors without the ability to enforce rules or charge homeowner association dues.

HOA board vs. HOA management

An HOA community typically has an elected board of volunteer residents to establish rules and vote on community policies. In addition, many HOAs hire an HOA management company to run the community. The third-party management company runs the day-to-day operations of the community including collection of HOA fees. The board establishes policies and makes decisions that the management company enforces, although the management company can act as an advisor to the board.

The management company can also communicate with residents to handle things such as maintenance requests, send reminders about the decisions made by the property owners association and notices about late HOA fees.

What are HOA fees?

HOA fees generally pay for insurance, repairs and maintenance of common areas and services such as trash collection and in some cases, amenities such as a fitness center. HOA fees, especially for co-ops and condos, can run in the hundreds to more than $1,000, particularly in urban areas with a high cost of living. When buying a home, it’s important to compare what is included in your HOA fees to decide whether the HOA fees are too high.

Unlike some other costs of homeownership such as your mortgage interest payment, homeowner association dues are not tax-deductible.

What do HOA fees cover?

HOA fees pay for the operations of the community such as trash collection, snow removal and maintenance of common areas. Depending on the type of HOA, some exterior elements of the homes are maintained, too. In some communities, the HOA master insurance policy will provide significant coverage and lower your homeowners insurance costs. In others, utility costs may be included in the HOA fees.

In addition to paying for day-to-day operations, part of your HOA fees should be placed into a reserve fund for long-term projects and unexpected repairs. If an HOA doesn’t have sufficient reserve funds, a special assessment may be charged to all homeowners to cover a major expense such as repaving a parking lot.

Are HOA fees included in your mortgage?

No. HOA fees are paid directly to the homeowners association rather than to your lender. However, HOA fees are considered part of your housing costs and impact how much you can borrow to buy a home. Your lender’s escrow account, which functions as a savings account where you make monthly payments for lump sum bills that are paid annually or semi-annually, typically includes your property taxes and homeowners insurance premiums but not HOA fees. However, some lenders may agree to include HOA fees in your escrow if you request it, according to the Consumer Financial Protection Bureau (CFPB).

Most HOA fees are paid monthly, quarterly or annually. If a special assessment is required, that may be paid in a lump sum or installments depending on the size of the assessment. For example, if the annual HOA fees are $2,400, they may be paid this way:

Monthly $200
Quarterly $600
Annually $2,400

What happens if you can’t pay your HOA fees?

If you stop paying your homeowners association dues, your homeowners association can take several steps to force you to pay, including:

  • Send a demand letter for past due fees.
  • Restrict your use of amenities such as parking or a fitness center.
  • Offer a repayment plan.
  • Demand that your tenants pay the dues if you are renting your home to others.
  • File a lawsuit in small claims court.
  • File a lien against your property.
  • Pursue a foreclosure.

Pros and cons of choosing an HOA community

Pros

  May increase property values. An HOA community usually has rules that keep a community looking attractive such as landscaping and exterior appearance requirements. Services and amenities can also add to the appeal of a community and keep property values strong.

  May provide community amenities. Many homeowner associations include access to playgrounds, walking trails, fitness centers and swimming pools for residents.

  May provide services. Depending on the HOA community, services such as trash collection, snow removal and common area maintenance are covered. Some HOA fees include insurance and utilities.

  May resolve disputes between neighbors. A property owners association can often reduce conflict between neighbors by establishing and enforcing rules such as noise and pet regulations.

Cons

  May have high fees that can increase. HOA fees add to the cost of homeownership and often rise over time to pay for maintenance and projects.

  May have rules that limit your freedom. HOA rules can range from pet restrictions to business regulations to paint colors and what you can display on your front door. Some HOAs enforce rules rigorously while others are more lax.

  May require a special assessment. If a major project or repair is required and the homeowners association lacks the funds to pay for it, homeowners can be forced to pay a special assessment.

  May take legal steps if you violate rules or don’t pay fees. A property owners association can place a lien on your home or initiate a foreclosure for unpaid HOA fees.

FAQs about HOAs and mortgages

Are HOA fees required in my mortgage payment?

No. If you buy a home in an HOA community, you must pay HOA fees to live there. However, the fees are separate from your mortgage.

Who enforces HOA rules?

In most HOA properties, an elected board of volunteers establishes rules, responsibilities and consequences for residents. If there is an HOA management company, they may communicate with residents on behalf of the board about violations.

What should I ask about how an HOA is run?

As a buyer or a homeowner, you need to know whether there is a volunteer board, a management company or both operating the HOA community. It’s important to understand whether the homeowners association has reserves for future expenditures, how often dues can increase and whether a special assessment may be needed.

What do HOA fees cover?

Your HOA dues will pay for different things depending on the community, so it’s important to know exactly what they cover such as road maintenance, trash removal and access to a fitness center. You should ask about insurance coverage and whether any utilities are covered by the fees, along with who is responsible for the exterior of your property.

What legal power does an HOA have?

Depending on the laws in your state, your HOA community can legally enforce the homeowners association rules and take action against you for nonpayment of HOA fees.

 

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