HOA fees: Everything you need to know
Owning a home has long been considered a cornerstone of the American dream, with 74 percent of Americans expressing their agreement in a recent Bankrate Financial Security survey. For those residing in communities governed by homeowners associations (HOAs), an array of benefits await, ranging from well-maintained common areas to access to swimming pools and sports facilities. However, before taking the plunge into an HOA community, it’s crucial to understand the ins and outs of HOA fees and what they entail. In this guide, we’ll delve into everything you need to know before purchasing a home in an HOA community.
What is a Homeowners Association (HOA)?
A homeowners association, or HOA, is an organization within a community that establishes and enforces rules for properties under its jurisdiction. These rules can cover a wide range of topics, from the colors you can paint your house to the number of pets you’re allowed to have.
HOA Benefits
- Access to valuable amenities like fitness centers, playgrounds, and pools.
- Hassle-free maintenance of common areas, such as lawn care and snow removal.
- Guidelines that ensure the neighborhood remains visually appealing, thus maintaining property values.
HOA Drawbacks
- Obligation to pay HOA fees, which can vary widely from community to community and range from $100 a year to over $1,000 per month.
- Imposition of various restrictions and rules, potentially affecting how you can use your home (e.g., restrictions on home-based businesses and renters).
- Risk of foreclosure if dues are not paid on time, depending on your state’s laws.
Understanding HOA Fees
An HOA fee is a regular payment (usually monthly or quarterly) assessed by the homeowners association to cover the services it provides. These fees are separate from your mortgage, property tax, and homeowners insurance payments. Even after paying off your mortgage, HOA fees are ongoing.
What Do HOA Fees Cover?
The services covered by HOA fees can vary based on the amenities available in your community. Common examples include grounds maintenance, landscaping, snow removal, electricity for common areas, and pest control.
How Much Are HOA Fees?
On a national level, the average monthly HOA fee is approximately $170. However, fees can vary significantly depending on the location and amenities offered by the community. For instance, an oceanfront condo with extensive amenities might have fees around $1,000 per month, while a modest gated community inland might charge only $150.
Special Assessment Fees
In addition to regular fees, an HOA board can authorize special assessments for major or unforeseen expenses, such as repairing damage after a natural disaster. These assessments can be one-time charges or ongoing fees, and HOA boards have the authority to implement them without resident approval.
Inflation and HOA Fees
HOA fees can be influenced by inflation, impacting the cost of goods and services required to maintain the community. As of August 2023, the annual inflation rate is 3.7 percent. It’s projected that community associations may need to increase dues by 10 to 15 percent by the end of 2023 to keep up with inflation.
HOA Fees and Location
Local laws and the cost of living in a particular area can significantly affect HOA fees. High-cost areas and those prone to extreme weather may have higher fees. For example, some Florida condo associations saw property insurance premiums rise nearly 1,000 percent due to recent inflation.
Are HOA Fees Tax-Deductible?
In general, HOA fees are not deductible for primary residence owners. However, if you rent out your property, the dues may be deductible as a rental expense. HOA special assessments are not deductible.
Conclusion
Before purchasing a home in an HOA community, it’s essential to weigh the costs against the benefits. Understanding HOA fees and their implications can help you make an informed decision about whether this type of community is the right fit for you. By considering location, amenities, and potential future expenses, you can ensure a smooth homeownership experience within an HOA.