The Ins and Outs of Today’s HOA

HOA

If you thought navigating the ins and outs of an HOA, and its associated costs and benefits, was just for condo buyers, think again.

HOA stands for Homeowners Association: an organization responsible for managing some of the day-to-day activities and responsibilities of a tight-knit living community.

It takes a coordinated effort to care for a neighborhood as a group, instead of the typical “every man for himself” approach many Americans are familiar with. And HOAs, and their related fees, are becoming more of a fixture in real estate than ever before.

More than half of all homeowners nationwide now participate in HOAs, according to U.S. Census data, in large part because of the boom in new construction within designated housing communities.

hoa

Those neighborhoods and housing communities have a lot in common with the condos and apartments where HOAs got their start. To prioritize smart organization, these areas often feature community spaces that don’t belong to any property in particular – rather, they belong to everyone with stake in the neighborhood. They also share vital services such as trash removal and community improvements over time.

What do HOAs do? What do they cover?

For common areas and shared services to have mutual benefit, everyone must pitch in. The HOA will charge each homeowner a membership fee as a stipulation for living in the community. That fee goes towards maintenance, repairs, insurance coverage, and utility management within the community spaces. Think of your regular contribution as taking care of your share of the responsibility.

To keep HOAs grounded, a board of directors is formed internally of members from the housing community. Residents elect representatives from the community to serve on the board.

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The board will decide how much each household needs to contribute, where that funding needs to go, and what rules members of the community need to observe in order to keep everything flowing smoothly. While nobody likes a stickler, that last one is important. Toddlers have a good point when they say sharing is hard. It takes a little discipline to make sure that everyone treats communal resources with equal respect.

How does an HOA benefit its members?

When you move into a community with an HOA, you’ll have to agree to the conditions for membership. Yes, this means agreeing to fees and rules that might not make much sense at first. After all, you’re buying your home…shouldn’t that mean you make the rules?

Your participation in the HOA ensures that everything you don’t personally own still gets the attention it needs. No more griping about the unkempt lawn down the street, the overflowing trash bins next door, or abandoned dog poop in the courtyard.

In turn, you won’t need to put in the extra work yourself. Many HOA’s cover garbage and recycling, snow shoveling, landscaping, roofing, painting, window cleaning, security, and even some utility costs. Time is money too, and it pays to take a few things off of your to-do list. Make sure that you review the details on what exactly your HOA benefits include, and what constraints you’ll have to abide by in exchange.

Data also shows that HOAs help preserve home value over time. Regular neighborhood maintenance, alongside access to attractive facilities like parks and pools, hikes up the worth of your property. When it’s time to sell, your investment into the HOA could very well pay off in the end.

How does an HOA affect finances?

There’s no set range for HOA fees because they depend on specific aspects of your community, including location, size, population, services, and facilities. The monthly cost of membership can range from a low of about $150 per month to upwards of $1,000 per month in some areas. A monthly HOA fee tends to correlate with home value and the local cost of living. However, this is not always the case. Since HOAs are private organizations, there are no overarching rules that dictate how much they charge. Available resources, high demand, and community size can also affect pricing.

Your HOA fee is separate from your monthly mortgage, but does affect how much you can borrow. Sometimes your mortgage company will include HOA fees in your escrow, but the payment often just comes out of your regular bank account. Either way, HOA costs play into mortgage rates because they impact your debt-to-income ratio by adding to your total debt. You might have to bring home a higher salary than you originally thought to earn the same loan approval.

Lenders may also look into the history of the HOA to make sure that it demonstrates a positive relationship with its members, including reliable payment rates and satisfaction with neighborhood happenings. An HOA that fails to meet such criteria presents a bigger risk in the eyes of the lender, which might in turn affect your mortgage approval.

Navigating an HOA doesn’t have to throw you off course. Talk to your Nest agent and familiarize yourself with the details of the HOA of the properties you are considering well before closing day to ensure that you won’t face any surprises, and can take full advantage of the benefits once you move in.

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