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When shopping for a new home, you might find property listings that say residents are responsible for paying fees to a homeowners association (HOA)—but what does this mean?
HOA fees are paid by people who reside in a condo building, townhome or single-family home that's in a community managed by a homeowners association. This money is used to maintain common property spaces and other shared amenities such as streets and plumbing within the neighborhood.
How Do Homeowners Association Fees Work?
An HOA is a legal entity that manages the care of the communal spaces in a neighborhood or building. The HOA also enforces community rules, such as where you can park, how you must maintain your home's appearance and hours when loud noise is restricted. HOAs are typically run by a board of directors that's elected by homeowners in the community.
Residents who live in a neighborhood or building with a homeowners association could be required to pay mandatory HOA fees (sometimes called HOA dues) monthly or quarterly.
A portion of this payment may go into an operational expenses account to cover the upkeep of common areas and to pay for services like pest control, neighborhood security or snow removal. The second portion of member payments may go into a reserve account that acts as a savings account the HOA draws from for emergency repairs or expenses.
On top of the regular monthly fees, if a resident breaks a rule—like painting their home a color that's not approved or leaving trash in the wrong area—the HOA may charge fines. However, some states set limits on the fine amounts that an HOA can charge, and often you'll get a warning before you're hit with an extra fee.
If you're required to pay HOA fees or fines, it's a good idea to keep up with them since not paying could result in the HOA putting a lien against your property or worse—they could foreclose on your home.
How Much Do HOA Fees Cost?
HOA fees can range greatly based on where you live. In some cases, you might pay just a few hundred dollars, while other HOAs might charge over $1,000 per month.
A study of U.S. Census data by Trulia found that two factors which can impact the fee amount are a building's age and the number of units: Newer buildings and properties with fewer units tend to have smaller fees. Single-family houses with fewer bedrooms may also have lower fees.
If you fall in love with a condo or house where HOA dues are required, the mortgage isn't the only cost to consider when calculating home affordability. HOA fees could cause a home that's within your budget to become unaffordable if it means paying a few hundred dollars per month.
How to Lower Your HOA Fees
If HOA fees are high or increasing beyond what you think is necessary to maintain your community, try the following steps to lower HOA fees:
- Join the HOA board. As a member of the HOA board, you may have an influence on the dues charged. Attend meetings to find out the steps for joining. Members generally have to be voted in through an election, so you'll need to find out how to campaign for a spot and when the elections will be held.
- Review the HOA budget. Check each line item of the HOA budget to see if there are any opportunities to reduce costs and pass on the savings to members.
- Negotiate with contractors. Have contractors compete for your business. Shopping around and requesting new bids could help you lower expenses so you and other members can pocket savings.
- Dip into reserves. If your HOA has a surplus of cash reserves, you may be able to persuade the board to use some of the reserves to pay for operational expenses to reduce costs for members.
The Bottom Line
Living in a community overseen by an HOA means you may have to follow rules and pay dues, but this can also come with advantages. The pooled resources used for maintenance could make your neighborhood more attractive and enjoyable to live in.
Before buying a home, consider requesting a history of HOA fees to get a sense of how often they increase. This way you can go into the home purchase with an understanding of what fee hikes to expect and you may even learn of planned increases that you can budget for.