A homeowners association (HOA) is a private organization of property owners that creates and enforces rules for a residential community, neighborhood or subdivision with shared amenities like a clubhouse, swimming pool, pickleball courts and landscaping. Home buyers should be aware that if they purchase a home with an HOA attached, they will be expected to pay fees for shared services and facilities, as well as follow the HOA community rules.
Key Takeaways:
- An HOA, or homeowners association, manages a housing community or neighborhood and sets rules for residents based on a shared set of agreements.
- HOAs can ensure the value of your investment and make you feel secure and confident about your decision.
- HOAs charge fees for shared amenities like landscaping or a community pool.
- While HOA rules aim to maintain the neighborhood, some people find them too restrictive.
What Is A Homeowners Association (HOA)?
An HOA is an organized group of property owners who live in the same subdivision, community or neighborhood. This organization creates rules for other homeowners in its jurisdiction, making it a powerful force, as residents are required to follow those rules. A home buyer who is not comfortable with having to meet HOA expectations for residents may not be the right fit.
For many residents, an HOA provides safety and peace of mind. Its work ensures the community is well taken care of and stays valuable. Those who reside in a property that is part of an HOA and benefit from this inclusion are required to pay HOA fees. These fees pay for the continued upkeep and maintenance of any shared facilities and amenities, as well as services like landscaping.
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How Do HOAs Work?
An HOA has a board of directors, typically composed of local homeowners in the community, neighborhood or subdivision, that oversees rule enforcement. If you break the rules of your HOA, depending on the situation, you could get a warning or be issued a fine, or the HOA, in some cases, could take legal action. HOAs are not simply community police; they have legally enforceable powers, and they collect fees from homeowners within the HOA.
Sometimes fees are used to improve common areas or provide services like lawn care, snow removal and pest control. In other communities, the funds may put them toward security measures. But the coverall responsibility is to ensure the upkeep of the community.
HOA Structure And Governance
HOAs need effective governance structures to use their broad oversight powers fairly for the community’s common interest. The two most common governance structures are:
- HOA board of directors: This is the executive body that enforces the rules and regulations of the HOA. It also decides how much to collect in HOA fees and what to spend the money on. The board comprises volunteers living in the community who are elected by their fellow homeowners.
- HOA management company: Sometimes, a volunteer board of directors is not equipped to handle the day-to-day management of a large HOA, such as a condominium. In that case, the HOA board can hire a management company to take control of these duties. While this arrangement may result in more attentive community management, it also comes with higher HOA fees.
Rules In HOA Communities
HOA rules are defined in a set of documents known as the covenants, conditions and restrictions (CC&Rs). A vital section of a CC&R defines how much money the board can collect in HOA fees from each homeowner. The board then decides how to utilize these fees to keep the community safe, maintain amenities and retain the value of the community as a whole.
If you are considering buying a home in an HOA community, make sure your lifestyle is complementary to the HOA rules before you take out a mortgage. There are horror stories among homeowners who found the HOA rules and regulations too stringent.
Some of the standard rules defined in CC&Rs that home buyers should be aware of before they commit to an HOA-run community are:
- Lawn and decoration restrictions: Maintaining an acceptable exterior appearance is a critical factor in keeping up the value of an entire neighborhood. CC&Rs may set standards based on how long your grass can grow or what kinds of holiday decorations you can display in your yard.
- Home maintenance standards: Maintaining an attractive exterior to your home similarly affects the neighborhood’s value. CC&Rs can mandate that you must fix broken or dirty siding, windows or other unkempt aspects of your home’s exterior.
- Pet restrictions: CC&Rs may restrict the size or type of pet you can have or whether you can have a pet at all. These are more common in condominium HOAs, where pets may affect your neighbors more.
- Rules for common areas: Since the HOAs are responsible for building and maintaining the neighborhood common areas, the CC&Rs will set rules for how and when residents can use them. These rules may include the hours during which the common areas can be used or whether and when members of the HOA can bring non-members to the facilities.
- Restrictions on renting: If you want to turn your home into an investment property, check with your HOA to ensure it’s allowed. Some CC&Rs prohibit non-owners from living in an HOA property.
If you are planning to purchase a condominium versus an HOA, you will likely have to pay for fees toward upkeep of amenities, shared common spaces, trash and recycling, and other services. Condominium complexes frequently have HOAs, but not all condominiums do, so it is worth asking if you are shopping for a condo.
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Should You Live In An HOA Community?
HOAs are increasingly popular. According to data shared by the National Association of REALTORS® from the Foundation for Community Association Research, nearly 75.5 million homeowners reside in an HOA community, but it is important to consider all sides of living in one.
Here are a few of the benefits and drawbacks potential homeowners should keep in mind.
Pros Of HOA Communities
- Access to amenities: One of the perks that may come with an HOA community is available amenities, such as trails, pickleball courts, fitness centers, playgrounds, clubhouses and pools. HOAs use monthly fees to maintain these spaces so you can enjoy them without having to help maintain them.
- Access to services: HOA fees pay for snow removal and trash and recycling collection, and in some cases, they may cover certain utilities.
- Can help settle disputes with your neighbors: Issues can arise between neighbors. Some may play loud music late at night or have an unkempt lawn that may harm the value of the community as a whole. With an HOA, you won’t have to deal with these issues alone. If a neighbor breaks a rule, the HOA can act as an intermediary to resolve the problem so you can get results without the hassle.
- Protects your property value: An HOA instills rules that everyone in the community must follow, which in turn helps keep property values high. In particular, it enforces regulations about caring for the home’s exterior. Sometimes, it may also oversee a neighborhood watch or hire security. As a result, an HOA protects the value of your property, unlike a neighborhood, where unkept yards or run-down or damaged homes may impact how much your home is worth.
Cons Of HOA Communities
- Potential for restrictive rules: Some homeowners may prefer more freedom to determine an exterior style for their home or decorate for holidays in a manner that differs from the rules set by CC&Rs.
- Potentially expensive fees: Living in an HOA community means paying regular fees along with your typical homeownership costs, including your mortgage. If you don’t pay the fees, you could face legal consequences or even foreclosure.
- Varying levels of enforcement: Some HOAs can be poorly managed, whether they misuse funds or fail to support their residents. That can lead to community conflict and financial problems and ultimately drag down property values.
- May not allow pets: If you are a pet owner, make sure your furry friend is welcome.
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Homeowners Association FAQ
People are often curious about a few things when it comes to HOAs. Here are some of the most common questions.
The Bottom Line: Research The HOA Before Buying
HOAs can be fantastic resources to help you maintain the value of your home. But their effectiveness can vary widely. Before buying a home, do your due diligence by asking HOA board members about how much the fees are, when they are due, what they cover and how often the fees increase, which can add to your monthly mortgage.
In addition, find out about the rules and regulations to make sure they are a fit for your household. Find out about the shared amenities to make sure they align with what you need in an HOA community. Ask for a copy of the CC&Rs for review, and ask about the governance structure as well.
It may be easier to talk to local homeowners in an HOA community versus a non-HOA neighborhood. Ask your potential neighbors if they feel the HOA upholds its duties to keep the community attractive and valuable. If you are interested in buying a home with its own HOA, finding the best home loan may offset some of the HOA fees, if you get a good rate and terms.
Maya Dollarhide
Maya Dollarhide is a freelance writer with over a decade of experience covering personal finance topics. Her writing credits include AARP, Bankrate, Investopedia, CNN.com, Yahoo Finance and Lending Tree. She enjoys writing articles and producing multimedia content that helps individuals and families make informed decisions about their money, from mortgages and home loans to reducing credit card debt and saving for retirement. She has also created educational materials for use in schools to teach young people about personal finance, from opening up a bank account to saving for college and beyond.
