What Is A HOA? How Do They Help?

After months and months of searching you finally find a house that is right on your price point, but it comes with a month fee called the HOA. So what exactly is the HOA fee and what does all that extra cash exactly pay for?

For starters, HOA stands for Homeowners Association. This encompasses all homes like condos, townhomes, or freestanding homes in a planned community. The monthly fee covers the communal areas of the neighborhood.

The reasoning is that everyone living in the neighborhood has equal access to the common areas and is equally responsible for keeping them well maintained. The usual areas everyone gets to use are pools, parking garages, clubhouses, general landscaping, workout rooms, sidewalks, gates, roofs, and building exteriors. The insurance for covering these areas is also part of the monthly payment.   

Of course no one likes paying extra on top of a mortgage payment, but it can actually help save on other maintenance costs. So before you complain too much, think about what it could actually do for you.

How much are HOA fees

For a typical single-family home, HOA fees can cost anywhere from $200-$300 a month, but can vary depending on the size of your unit.

For example, I have a 1,600 square ft. condo in Louisville, Kentucky with a pool, weight room, landscapers, snow removal, and fences, and it is $166 per month. Utilities are not included. One could imagine what a fancy Hollywood community would cost if it offered all services and amenities, probably somewhere in the thousands.

What is an HOA?

Monthly HOA fees are typically split in two parts. The first part goes towards the communities monthly expenses. The second part goes into a reserve fund, or a rainy day fund. These funds stack up and go towards the bigger repairs like new roofs, plumbing issues, exterior painting etc. These also cover the emergency situations like natural disasters, vandalism, and the typical wear and tear throughout the years.

What’s an assessment?

 If natural disaster does strike the insurance will only cover part of the cost, and your HOA is left to pay the rest. If this does happen, the HOA will use the reserve fund, and it could be used up completely. In this case the HOA may mandate that all homeowners pay a special assessment bill beyond your regular HOA fee.

As crappy as that sounds, it will only be temporary until the HOA reserve fund is back up to a padded level.

What happens when you don’t pay HOA fees?

 Most lending entities take into account the HOA for drafting your mortgage. They won’t give you a mortgage unless they feel you can afford it, meaning they’re taking into account your monthly income compared to your monthly expenses.

When life happens as it usually does, and you cannot afford to pay your HOA, you may be able to work out a deal with your HOA board. Before you miss even a single payment, let them know you have hit hard times. They might be able to take the same course of action the bank would if you fall too far behind. The board could evict you, put a lien on your home, or foreclose it.

The whole function and reason in your HOA fees will be laid out in the conditions and restrictions once you move in.  Read these carefully before you buy your home so you know exactly what you’re getting into. Read it often so you know what to expect.

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