Mother and son walk in neighborhood
Allen J. Schaben/Getty Images

What is a home owners association?

A homeowners association, or HOA, is an organization within a community that sets the rules for properties in its jurisdiction and enforces them. If you live in a single-family home, condominium or townhouse with shared areas, such as a swimming pool, tennis court, parking lot and security gates, those common areas are probably maintained by an HOA.

The HOA collects fees from its member property owners to pay for the upkeep. An HOA is run by a board consisting of property owners who are elected by other property owners in the HOA.

How do HOA fees work?

If you plan to buy a home that’s in an HOA, you should understand what HOA fees are and how they work before you sign a contract.

Perhaps the most important thing to know is that HOA fees are paid in addition to your mortgage, property taxes and insurance. The importance of asking about HOA fees before you buy a new home cannot be overstated.

The fees are usually paid monthly or quarterly to cover routine upkeep of the property. Some of the costs paid out of the HOA fees are:

  • Grounds maintenance, landscaping.
  • Pool maintenance.
  • Trash removal.
  • Electricity and other utilities for common areas.
  • Fire alarm systems.
  • Gate security guard.
  • Pest control for common areas.

It’s the duty of the HOA board to collect enough fees to cover the expenses. HOA fees can rise steeply, depending on how much maintenance costs increase each year.

How much are HOA fees?

The board of directors that runs the HOA decides how much to charge property owners to cover the community’s expenses. HOA fees vary widely, depending on the property location and the amenities available to property owners.

For example, the owner of a swanky oceanfront condo in Florida that’s loaded with amenities might pay $1,000 a month in HOA fees, while someone in a modest gated community 10 miles inland might pay only $150 a month.

Larger residences in an HOA usually pay more than smaller ones, with the assumption being they use more services. For example, it costs more to cut the grass at a large, single-family home than at a one-bedroom unit.

HOA fees help maintain the quality of life in the community and protect property values.

Watch out for unexpected HOA fees

Reserve fund. In addition to the regularly scheduled HOA fees, HOA members usually pay into a “reserve fund” for longer-term repairs and maintenance. Maybe a roof replacement for the recreation center is planned in five years, the building is due for a paint job down the road, or the parking lot will need to be repaved.

Often, a community will have a comprehensive reserve study done by a company that specializes in that. This is a planning tool that gives HOA communities a timetable and cost estimates for capital projects.

HOA communities that do not have a reserve fund, or whose reserves are not sufficiently funded, will end up levying “special assessments” to maintain the community.

Special assessments. Sometimes, HOA boards levy special assessments to cover repairs or maintenance costs that exceed the budget. Let’s say the elevator in a high-rise condo breaks down and a very expensive part is needed to fix it.

The repair is an emergency, but the funds are not in the budget. The HOA can charge every unit owner a special assessment to cover the repair.

Special assessments can be steep, and are paid in addition to regular HOA fees. Special assessments should be discussed and approved at a homeowners association meeting, and a resolution passed authorizing the association to levy an assessment.

Questions to ask before you buy in an HOA

If you’re considering buying a property that has a homeowners association, the amount of the HOA fees should be readily available. Often, it’s included in the real estate listing. You should also be able to access, through your real estate agent or the HOA, minutes of past HOA meetings and other records that show fee changes and any rules that relate to fees.

As you learn more about the HOA, look for answers to the following questions:

  1. How often has the HOA increased fees in recent years?
  2. What services do these fees cover? What don’t they cover?
  3. Does the HOA have a reserve fund for long-term repairs and maintenance, and if so, how much is in it?
  4. Has the HOA hired an expert to conduct a reserve study that estimates how much money should be saved to cover these expenses?
  5. Does the HOA have a history of charging special assessments? If so, how much were they, what were they for and how often did they occur?

Getting answers to these questions may lead you to conclude that the HOA doesn’t have enough cash on hand for significant expenses, which means that either HOA fees will go up or special assessments will be charged.

Or, the answers may give you confidence that the HOA has planned well for the future and has enough money for future costs to avoid high, unexpected special assessments.

As you analyze the short- and long-term costs of buying a property, learning about HOA fees will help you make a better decision.

You might discover that a property that otherwise looks affordable is actually out of reach. Or, you might conclude that it’s a perfect fit for your finances.

Use our calculator to figure out how much house you can afford to buy.

Learn more: