HOAs and How They Affect the Home Buying Process

Neighborhoods such as subdivisions, planned communities, or condominiums can organize a homeowners association (HOA) to govern the community. HOAs have recently increased in popularity, and Americans have a one in five chance of living in an HOA property. The HOA creates and enforces rules, called Covenants, Conditions, and Restrictions (CC&Rs), that address the maintenance of the properties. Community residents serve on the board of the HOA, and membership is usually a requirement if you buy a house within the community. This means paying the necessary fees, which can go toward keeping up common areas, shared structures, housing exteriors, and other amenities.

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Does an HOA Affect the Home Buying Process?

When searching for properties, learning about the pros and cons of HOAs will help you make the best decision for your situation. You have to consider the fees required when you join an HOA. Often the community will come with several perks, making the cost worthwhile, but abiding by the CC&Rs may curb the creativity you want to take with your property. Most importantly, a house with an HOA will change how you qualify and apply for a mortgage.

HOAs and Applying for a Mortgage

Banks and other potential lenders consider how purchasing a property with an HOA affects property values and your financial situation. The required HOA fee could even influence your ability to qualify for a mortgage since it shifts your debt-to-income ratio. Even if the bank offers you a mortgage, a higher HOA fee could mean the mortgage is smaller than you’d need. Failing to keep up with your HOA fees, for whatever reason can also violate the terms of your mortgage, causing problems. Open communication with your mortgage banker about how an HOA mortgage property will affect your finances and ability to secure lending helps smooth potential conflicts.

Are HOA Fees Included in Your Mortgage Payment?

Your HOA fees will constitute a separate monthly or quarterly payment in addition to your mortgage, property taxes, and homeowners insurance. The money could come out of your own bank account or an escrow account, as it depends entirely on the mortgage company whether or not your HOA is included in escrow. Your bank may prefer to include an HOA in an escrow account, even if the payment is separate from your mortgage, because it offers a secure way for lenders to pay the fees themselves rather than depending on the borrower to keep up with the payments.

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How HOAs Affect Property Values

A point in favor of HOA argues that it protects the property value of the community. Properties with an HOA are on average valued 4% higher than similar properties not belonging to one. The curb appeal, lawn maintenance, landscaping, and vehicle regulation all contribute to maintaining or elevating this value. Often HOA’s will even have a color palette for house exteriors, creating a desirable cohesion. Unfortunately, if you’re applying for a mortgage, a high HOA fee in a highly valued neighborhood could affect your ability to secure a mortgage, because it changes your payment ratios.

Who Is In Charge of Your HOA?

Every community’s HOA will work differently, and understanding the dynamic in your prospective neighborhood can help you determine whether the property is right for you. Often, people within the community volunteer for their HOAs, and association members elect the people they believe will best represent community interests. Other HOAs are professionally run. You will want to know how the HOA board communicates, how they handle disputes, and how often drama arises. Ask your real estate agent or a community representative for the contact information of the HOA so you can ask questions directly. From there, you can decide if a more active or relaxed HOA suits you better.

Is the HOA Worth It?

The value of an HOA depends on the community and person. Some HOAs offer services such as repairing building lobbies and roofs, community streets, gardens, or sidewalks. Communities with HOAs might feature attractive amenities for their members covered by the fee, like security, landscaping services, gyms, swimming pools, or clubhouses. On the other hand, HOA fees aren’t static and can increase over time with the property value of the community. The emphasis on uniformity doesn’t appeal to all potential buyers, and the CC&Rs may seem arbitrary or strict to someone dreaming of a house their own style. You have to look at the cost of your HOA, what it covers and whether you think it works for you.

HOAs, Mortgages, and You

Are you wondering if HOA fees included in mortgage payments are right for you? HOAs add a new dynamic to the home buying process, and each case is unique. If you have questions about your own property search and mortgage qualifications, our mortgage bankers can walk you through your options.  If you’re interested in more information about applying for a mortgage and what that entails you can work one-on-one with your Capital Bank Home Loans mortgage banker to answer all your questions. We’ll find a financial solution that fits your terms and budgets, without headaches or hassles.