Guide To Deed Restricted Communities
A deed restricted community is a development where all property comes with conditions (typically focused on upkeep and usage), put into place and enforced by a homeowners association (HOA). Deed restrictions stipulate, or limit, how homeowners can use their property, based on the official property records of the home.
If you’re looking to buy a home, it’s important to understand whether there are deed restrictions intended to back up restrictive covenants, which limit your property rights and otherwise place conditions on ownership. Such covenants and deed restrictions can impact the home buying process in a couple of ways:
- The rules can be more desirable to some and less desirable to others.
- If a deed restriction acts in any way to favor or exclude groups, there may be issues with getting mortgage financing.
The rest of this article will go over common deed restrictions, along with the pros and cons associated with them, before concluding with an overview of the common issues to be aware of when purchasing in a deed restricted community.
What Are Common Deed Restrictions?
A restrictive covenant is the legal agreement upon which a deed restricted community is made. In terms of the covenants backed by deed restrictions, here are a few of the most common ones:
- Fencing: Approved fencing may need to fall in a certain height range or require the use of a specific list of materials.
- Tree removal: The HOA may reserve the right to prohibit certain trees from removal under beautification requirements.
- Vehicle parking: The most common restriction in this area is that vehicles have to be parked in the driveway, in your garage or in your carport space overnight. Some communities may have restrictions that you can’t have a car up on blocks or otherwise in non-working condition. Be sure you know what the rules are.
- Customized mailboxes: If you want to have a different color for your mailbox, or a stylized number or name on it, it may be prohibited.
- Exterior paint: In communities without an HOA, you can typically let your imagination run wild and paint your house exterior in an Andy Warhol-style pop art color scheme if you want. In a deed restricted community, this may not be allowed.
- Restrictions around pools and property structures: Depending on the restrictions in your community, they may require that you don’t have a pool (or that it must be in-ground). Similarly, you may be limited in your ability to put up a shed or construct an accessory dwelling unit on your property.
- Age restrictions: Certain communities catering to an older population may have an age restriction on who can live in the properties. Typically, these tend to be 55+ communities. In order to get mortgage financing, they have to follow federal housing law. We’ll get into more detail on this later on.
The Benefits Of A Deed Restricted Community
Restrictions can be limiting, but they can come with benefits that are common to HOAs. Here are a few of them:
- Prioritized upkeep: Specific rules around maintenance can mean that people place a priority on getting those tasks done. This could have the effect of helping maintain property values by reducing the likelihood of blight.
- Community amenities: An HOA may grant community members access to certain communal amenities such as pools, clubhouses or tennis courts. They may also be something as simple as communal snow removal or lawn care.
- Sharing of expenses: People don’t have to pay for their own pool, shuffleboard courts, snow removal or lawn care in HOAs that provide these services. Those who would like these items may benefit from the fact that expenses like these are shared across the association.
The Risks And Drawbacks Of A Deed Restricted Community
For some people, the drawbacks of living in a community with deed restrictions may outweigh any benefits. If you’re the type of property owner who chafes at anyone telling you that you can’t paint your house magenta or put up a blowup decoration of Homer Simpson in a Santa outfit during the holidays (or conversely, that you must decorate during the season), the restrictions placed by HOAs may not be for you.
In addition to the limitation of your individual liberties, it can also limit your ability to sell the house to whomever you want in some cases. This is because deed restrictions are considered an encumbrance. An encumbrance is a claim that another person or entity has to your property.
In the case of most deed restrictions enforced by an HOA, new owners have to agree to the rules put in place by the neighborhood or condo association. This may limit the potential pool of people who are willing to buy your property.
In other cases, there may be restrictions regarding who can move in even if they agree to the other rules. The most common example would be 55+ retirement communities, but in some areas, ownership is prohibited based on other characteristics.
How Purchasing In A Deed Restricted Community Will Affect Your Home Buying Process
Getting a home in a deed restricted community can have a couple of impacts on your home buying process. Let’s run through them.
The most obvious restriction has to do with limitations on being able to do what you want to do with your property. Ideally, you know what those restrictions are well in advance, but if you don’t find out about a deed restriction until the title search, any surprises could dissuade you from getting the property that you would have loved if it weren’t for a particular HOA restriction on the height of hedges, for example.
The second hurdle has to do with financing. If deed restrictions place any limits on who you can sell the property to, you may find that you have a hard time getting a mortgage. The reasoning behind this is that in the event you struggle to make payments, a deed restriction could cause headaches. If you do end up defaulting, the mortgage lender has to sell the house. They won’t want any restrictions on who can move in.
For example, some mortgage lenders won’t fund homes subject to the following deed restrictions:
- Anything related to title transfer limits may affect a mortgage lender’s decision.
- Title provisions for a first right of refusal could impact a decision. A title provision means that anything where the association or other entity has the first option to buy the property won’t be funded.
- Properties located on a Hawaiian Homeland development might be rejected for funding by lenders.
- Properties requiring you to belong to a specific religious order could be ineligible.
- Lenders might not want or be able to fund homes in areas specifically designated only for low-to-moderate income individuals. These homes can fall under affordable housing restrictions, Section 8 housing or inclusionary zoning categories.
Properties that are intended for those aged 55 and over are eligible for financing, but they have to comply with both the Fair Housing Act and the Housing for Older Persons Act.
The Bottom Line: Research Your Potential Home’s Deed Restrictions
Now that you know what the rules are for purchasing or refinancing a property with deed restrictions, you can decide whether one is right for you. To find out whether your potential new home has a deed restriction in place, talk with your real estate agent, a representative from the community’s HOA or an agent at the county clerk’s office.
If you’re ready to apply for a mortgage, get started today with Rocket Mortgage®.