Many residential neighborhoods today have an HOA, or Homeowner’s Association, in place to benefit the residents. They are typically private groups set up by residents of the neighborhood similar to a committee, and their general purpose is to manage and finance the overall upkeep of the neighborhood. The focus of an HOA is to protect property values and ensure that certain standards are kept up within the neighborhood.
When buying a home in a neighborhood with an HOA, it is important to carefully review the covenants, conditions and restrictions for the community. You’ll want to read over this list to be sure that you are comfortable following these guidelines before signing a contract. There is usually a broad range of rules, such as fencing or outdoor lighting that can or can’t be installed. Other HOAs may have more specific covenants listed such as the amount of pets or certain breeds you can or can’t own in the neighborhood.
Your mortgage lender will consider a mandatory HOA when drafting your home loan. This means they will include the HOA fees in the cost of your overall home loan to ensure that your income qualifies for the loan. Unpaid HOA fees could lead to a lien on your property, so lenders are required to account for them when calculating the loan. While most HOA fees are only a few hundred dollars per year, payment is required and your lender will want to be sure that you will be able to pay it before you are approved.
Generally, HOA fees will be more expensive depending on how much the HOA is responsible for in the neighborhood. A condo-style community may have higher fees due to caring for common areas, building exteriors, or community centers, whereas a suburban neighborhood would have more general guidelines such as enforcing certain parking rules.
HOAs are very beneficial and can bring up the property value of a home and neighborhood, but they must be carefully considered when sitting down to look at a new home contract. Be sure that you are educated on all of the guidelines set forth in your neighborhood’s HOA and that your loan will be approved with HOA costs considered.