At one point or another, you’ll have to face some tough decisions while house hunting. That should include how far you are from work, what kind of neighborhood your kids will be in, and whether the place is spacious enough. Money will be at the center of these decisions. In this regard, one crucial detail that’s bound to stick out like a sore thumb is the Homeowner’s Association or HOA — and the fees that come with it.
While you could actually choose not to buy a property under an HOA, that decision is not as available as you might want things to be. HOAs govern about 60% of single-family homes built recently, not to mention 80% of subdivision houses. Thus, it’s paramount on your part to study the pros and cons of joining an HOA before you ever set out to buy a property. Take note not doing so can be disastrous on your part.
The recent flag fight incident where a Fort Hood soldier, Sgt. Chris Link had to come toe-to-toe with an HOA that wouldn’t allow him to display the American flag in front of his rented home is a fine example. Of course, these are extreme incidents. However, that should tell you that the merits of an HOA should bid you well, especially if it’s your first time buying a house.
The Pros of Joining an HOA
Think of an HOA as a neighborhood watch keeping the community safe and sound. Technically, an HOA is for everyone’s protection. It provides a governing structure designed to keep order in a planned community (e.g., townhouses, condominiums, and single-family homes).
HOA is a modern-day landlord that ensures common facilities are running and everyone is doing its part for a fee. Before you say an HOA is bad, think of the following benefits:
- A well-maintained lawn: It seems like magic, but an HOA takes care of the exterior upkeep. So, instead of having to worry sick about finding the time to trim trees or do the landscape, fret not. HOAs take care of that for you. That’s not all. Depending on the initial agreements, HOA can do more. We’re talking about snow removal, trash pickup, and HVAC repairs.
- Bigger ROI: If you think of it in cash returns, HOAs could be a good financial decision. Research shows that HOA-governed single-family homes sell more than similar homes not within an HOA.
- Resort-like amenities: HOA community living has its perks. This means you have access to a slew of lifestyle boosts, such as swimming pools, tennis courts, and possibly golf courses. As such, you’d be privy to some awesome community events (e.g., pool parties and yard sales).
As you have an association that manages various aspects of the neighborhood, you have someone to intervene and resolve conflicts among neighbors, as they happen. By the looks of it, HOAs certainly have a lot to offer. Indeed, many Americans who took out a home loan for an HOA-governed property have gotten their money’s worth and have seen how advantageous living in one is.
The Disadvantages of an HOA
Before you jump in, there’s a part of HOAs that you should know. As enticing as an HOA may seem for many, there’s also the not-so-nice part. Here are some things to consider.
- HOA Fees: All the amenities and services aren’t free. It comes at a price or more specifically called an HOA fee. Don’t think for a second that this is an insignificant one-time yearly fee. These fees can rack up your monthly dues. Clarke and Freedman researchers peg HOA charge for a single-family home at $2800 on average per year. This comes at $100 to $300 every month, depending on the location.
- Liens and Foreclosure Risks: As busy as you might be, you may not be able to make the most of the amenities in your community. Nevertheless, you’re duty-bound to pay your monthly HOA dues. Otherwise, you could receive a fine. That’s not all. You can also be fined fail to follow the HOA rules, as the story of the sergeant above illustrates. Yes, you could even lose your home to foreclosure if you fail to meet your financial responsibilities.
- Lack of Freedom: The biggest drawback about HOAs is you will have to obey the community rules. So if you want your child to ride his or her bike outdoors after 6 p.m. but the HOA says it’s not allowed, then you can’t. The sad story of the sergeant illustrates this best. Additionally, pay attention to the paint you use. Some HOAs may not allow certain color schemes as well.
Bottom Line
It’s always best to check the fine print. Before you jump in, take a closer look. Specifically, ask for the HOA master deed or declarations. Additionally, ask about how the HOA is doing financially. Lest you forget, you should know if the home you’re about to buy has some financial HOA obligations attached to it.
Be objective about it. Check how much is expected of you and how often the HOA has increased dues over the years. As for your freedom, make sure you obtain a copy of CC&Rs, or Covenants, Conditions, and Restrictions. At the end of the day, you’ll have to decide if everything’s worth it. Doing so with the right information should help you make the ideal decision.