Homeowners Associations (HOAs) Explained: 5 Things to Know Before Buying

If you plan to buy a home in a planned community, condo building, or townhouse development, you’ll probably need approval from a homeowners association (HOA). An HOA is a group that makes and enforces rules for the properties in its area. It also collects monthly fees to pay for the upkeep of the community and manages shared amenities such as a gym or a pool. 

HOA communities can be appealing because they often have well-kept amenities and rules that help keep property values up. But they also involve regular fees and rules about what you can do with your property.

Key Takeaways

• Homeowners associations create and enforce rules for residential communities. Membership is often mandatory for all property owners within their jurisdiction.
• HOA fees can run over $800 monthly on top of your mortgage and other housing costs. These fees can fund amenities, maintenance, and reserve accounts for future repairs.
• CC&Rs (covenants, conditions, and restrictions) regulate everything from exterior appearance to pets.
• HOAs have many legal powers, including the ability to impose fines, place liens on properties, and, in some cases, initiate foreclosure proceedings.
• Before purchasing in an HOA community, consider reviewing its governing documents, financial statements, and other information to assess the association’s health and compatibility with your lifestyle.

1. Impact of Homeowners Associations on Homeownership

Homeowners associations can have a significant impact on almost every part of owning a home in their community. The extent of an HOA’s influence varies between communities. Some associations maintain a light touch, focusing primarily on maintaining common areas and enforcing basic standards. Others control nearly all aspects of your property’s appearance and usage. This variation makes it critical to research the association governing your potential new home before purchasing.

2. Homeowners Association Legal Powers 

An HOA’s power comes from a legal document called the covenants, conditions, and restrictions (CC&Rs). These rules explain what homeowners can and cannot do with their property and how they must take care of it.

A CC&R functions as a contractual obligation between you and your homeowners association. When you purchase property in an HOA community, you agree to follow these rules. The CC&Rs are filed with your county recorder’s office and remain in effect even if a particular property’s ownership changes.

Common restrictions found in CC&Rs include:

• Property appearance: Regulations on paint colors, architectural styles, landscaping requirements, and decorative elements
• Structural modifications: Rules governing additions, renovations, fencing, and exterior alterations
• Vehicle restrictions: Limitations on the number, type, and parking locations of vehicles
• Pet policies: Rules about the number, size, breed, and containment of animals
• Usage restrictions: Regulations on home businesses, short-term rentals, and non-residential activities
• Nuisance prevention: Rules regarding noise, odors, visible storage, and other potential disruptions
• Signage limits: Restrictions on political signs, advertisements, and other displays

3. Homeowners Association Costs

If you own a home in an HOA community, you’ll have to pay an HOA fee in addition to your regular mortgage and home insurance costs. The fee is usually paid monthly or quarterly. 

HOA costs can vary widely depending on where you live, from a high of $859 a month in New York to a low of $64 a month in Idaho.

These fees typically cover:

• Maintenance of common areas and landscaping
• Upkeep of shared amenities (pools, fitness centers, clubhouses)
• Insurance for common property
• Utilities for shared facilities
• Operational costs and management fees

Beyond regular dues, HOAs can also impose special assessments—one-time charges to cover unexpected expenses or major projects when reserve funds are insufficient. 

When determining your loan eligibility and amount, your mortgage lender will factor HOA fees into your debt-to-income calculations. 

4. Homeowners Association Governance

If you decide to buy a home in an HOA community, it’s helpful to learn how the HOA works. This could make it easier for you to deal with the HOA and protect your rights as a homeowner. 

Most associations operate through a tiered governance structure that includes general membership (all homeowners), an elected board of directors, and, potentially, professional management. The board typically consists of volunteer homeowners whom community members elect to make operational decisions, enforce rules, manage finances, and maintain community standards. 

The primary governing documents, beyond the CC&Rs, are the HOA bylaws, which establish:

• Board composition and election procedures
• Meeting requirements and voting protocols
• Powers and limitations of the board
• Committee structures and responsibilities
• Amendment processes for governing documents
• Dispute resolution procedures

As a homeowner in an HOA community, you typically have the right to:

• Attend and participate in meetings
• Vote in board elections
• Review association financial records
• Propose changes to rules and regulations
• Run for board positions

5. Homeowners Association Finances

Before deciding to buy a home in an HOA community, it’s a good idea to check the HOA’s finances and how well it’s currently managed. This can help you avoid unexpected costs and determine if the HOA is running properly.

Request and carefully review key financial information, including:

• Current balance sheet showing assets, liabilities, and reserve funds
• Annual budget with income and expense projections
• Any studies indicating anticipated future capital expenses
• History of special assessments over the years
• Delinquency rates among current homeowners
• Recent audit reports or financial reviews
• Meeting minutes discussing financial decisions
• Pending litigation against the HOA

Additionally, consider speaking with current residents of an HOA about their own experiences. Ask specifically about the HOA’s fee history, communication regarding financial decisions, and transparency in the budgeting process.

Homeowners Association Pros

Advantages of HOA communities include:

• Maintained amenities: Many HOAs provide access to pools, fitness centers, parks, clubhouses, tennis courts, and other facilities that would be unaffordable for individual homeowners.
• Property value protection: Houses in HOAs are 6% more valuable than similar homes located outside of HOAs, according to the Cato Institute, a libertarian think tank. 
• Reduced maintenance responsibilities: Particularly in condominiums and townhouses, HOAs often handle exterior maintenance, landscaping, and occasionally utilities, potentially reducing your workload and time commitment as a homeowner.

Homeowners Association Cons

Disadvantages of HOA living include:

• Financial obligations: Monthly dues, potential special assessments, and fines for violating the CC&Rs represent additional costs beyond your mortgage, taxes, and insurance. These expenses can strain budgets, particularly when unexpected assessments arise. 
• Restrictions on property use: Rules regarding exterior appearance and renovations can limit your freedom as a homeowner, and breaking these restrictions could lead to fines.
• Governance challenges: Volunteer boards sometimes lack management expertise, leading to ineffective operations or internal politics within the HOA. 
• Foreclosure risk: In many states, HOAs can foreclose on your property for unpaid dues or fines, sometimes even when the amount you owe is relatively insignificant compared to your property’s value.

The Bottom Line

Homeowners associations create organized living spaces with appealing amenities, helping protect property values. In return, homeowners must pay fees and follow community rules. Before buying a home in an HOA community, it’s important to research the HOA’s rules, finances, and management. You can do this by reading the HOA’s documents and financial reports and talking to people who already live there.