What is a Homeowners Association (HOA)?

A homeowners association (HOA) is like a private, miniature government...

When you’re a citizen of a country, you need to pay taxes to the government and follow its rules. Those taxes then go toward the running of the country, and you (hopefully) get some say in its operation when you vote. Similarly, in an HOA, you need to pay fees and follow the rules it sets, but those fees go back into the community, and you usually get to vote on issues. If you want, you can even try to get elected onto the HOA’s board of directors, just like running for office.

A homeowners association (HOA) is a nonprofit organization made up of the people in a residential community, such as a housing complex, condominium complex, etc. The association is generally run by an elected board of directors who volunteer to serve the community.

Typically, anyone who buys property within the jurisdiction of the HOA automatically becomes a member, and that means he or she needs to pay HOA fees, usually on a monthly basis. These fees are then used for the upkeep and maintenance of the community and its features, such as parking lots, shared pools, workout spaces, etc.

The HOA’s primary purpose is to make and enforce rules concerning the operation of the community and to make sure it is properly administered. This has both good and bad sides.

While homeowner associations typically give residents a say in how the community runs, that doesn’t always mean your voice will be heard, and some homeowners associations can impose strict and arguably unreasonable rules. For example, one man in Texas ran into trouble with his HOA because he was parking his Ford F-150 truck in his driveway, which the association deemed was not “upscale” enough for the community. He was forced to park it in his garage.

Plus, HOA fees add an extra expense to residents’ budgets — Though that money does go toward benefiting the community.

Homeowners associations also try to keep property values high — which is good for current homeowners, but of course makes them harder to afford for others.

There were some 370,000 HOAs in the United States as of 2022, and roughly a quarter of Americans live under an HOA.

A HOA is essentially a private government: It’s a not-for-profit organization (a type of legal entity) that is made up of the residents in a housing community. The HOA is typically run by an elected board of directors who make and enforce rules regarding what residents can do with their properties. They are generally volunteers. However, some HOA boards hire property managers to oversee their properties. The HOA rules are usually outlined in a document called the Declaration of Covenants, Conditions, and Restrictions (CC&R).

Every month, the homeowners association collects HOA fees, which can vary widely from community to community. These fees go toward the maintenance and upkeep of the community, such as taking care of communal swimming pools, ensuring the roads are properly paved, etc. They can also impose assessments (payments that cover expenses not included in the monthly fees) when they are underfunded.

Certain decisions are put to a vote, and if a majority votes for one option, the board of directors will implement that ruling.

HOAs also strive to keep property values high, which is one reason for the often restrictive rules. If one person or household in the community makes changes to their property that don’t fit in with the community’s aesthetic, such as painting their house neon green, it could lower the value of the surrounding houses, as potential buyers will find the neighbor’s house to be an eyesore.

Here are some of the most important things to know about HOAs:

• You’ll need to pay fees: No one likes to pay extra, but HOA fees are a requirement for most HOAs. The fees can vary, but the average monthly fee in the United States in 2022 was $170, according to a Census reporting. Luckily, these fees go toward the maintenance of the community, so you’ll likely get some benefit from them.
• The HOA fees will factor into your mortgage approval: Since HOA fees are part of your monthly homeowning expenses, mortgage lenders will take them into account when determining whether you can afford to purchase a property under a homeowner association’s jurisdiction. Having HOA fees may mean the lender won’t loan you as much money to buy your home to account for the increased expenses.
• Some HOAs can mean a world of trouble: Not every HOA is the same. While some are run by a group of volunteers who are friendly and care about the well being and happiness of the residents, others may not be so nice. For example, some residents who are interested in going green and installing solar panels have encountered issues from HOAs who have ruled that solar panels don’t fit the aesthetic of the community.
• Some HOAs include insurance: This varies by state, but some HOAs split up insurance responsibilities for shared facilities among their residents. Other HOAs offer personal property insurance as an extra perk.
• You can end up buying a conflict if you’re not careful: Not every home seller will alert you to current disputes with their HOA. In fact, it’s possible that a home seller is moving precisely because the HOA wants them to make expensive renovations. If you don’t do your due diligence, you could end up inheriting their problem.
• Breaking the rules can lead to fines: Every HOA handles residents who break the rules differently, so make sure you find out what happens when people fall afoul of the regulations.
• Not all HOA fees include the same things: Just as fees vary, so does what’s included. For example, some HOAs may charge fees for all shared facilities and common areas regardless of whether you use them or not.

HOA fees are typically charged on a monthly basis and are used for the upkeep, maintenance, and insurance of the community and its facilities. HOA fees are usually based on the year’s projected budget plus an allotted cash reserve fund.

If you don’t pay your HOA dues, you can be subject to an HOA foreclosure. But the consequences for not paying your HOA fees will vary depending on the specific association.

In 2022, the national average for HOA fees was $170, according to Census reporting.

Yes, the covenants agreed to when joining an HOA are legally binding. Failure to adhere to the rules and bylaws of the HOA can result in fines and even foreclosure. Homeowners associations have a legal right to collect assessments, so long as they are a fair share of the community’s operating expenses.

Let’s take a look at some pros of HOAs:

• Your fees go toward amenities, services, and maintenance: HOAs are nonprofit organizations, which means that they aren’t collecting fees to profit off them. Instead, those fees are reinvested back into the community to help pay for maintenance and services, such as trash disposal, as well as amenities that you may use. This can relieve you of some responsibilities you’d need to take care of on your own without an HOA.
• They help maintain property values: One of the reasons HOAs are so strict is because they want to keep property values high, and that means making sure the community is in tip-top shape from an aesthetic standpoint.
• They give you representation: Although there’s no guarantee your voice will be heard, HOAs typically offer some form of representation in the organization’s bylaws and proceedings.

Some cons of HOAs include:

• You’ll need to pay fees: HOA fees can be expensive, and the amount of HOA fees you’ll need to pay can even affect your mortgage approval.
• HOAs can foreclose on your home: If you don’t pay your dues, your home may be foreclosed on by the HOA.
• You can be stuck with assessments out of the blue: When HOAs are underfunded, they can ask their members to pay special assessments, which are considered fair shares of the expense of shared facilities and services.
• They can be very restrictive: Not all HOAs are sunshine and rainbows. Some HOAs can be extremely restrictive. For example, one California homeowner had to pay $70,000 in legal fees and had his home foreclosed on because he planted more roses than the HOA’s rules allowed.